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Economy in Brief

U.S. Productivity Strength During Q3'20 Drives Unit Labor Costs Lower
by Tom Moeller  November 5, 2020

• Growth in output per hour remained firm for second straight quarter.

• Unit labor costs decline, reversing Q2 rise.

Nonfarm business sector productivity increased 4.9% (SAAR) during Q3'20 following a 10.6% Q2 increase, revised from 10.1%. A 4.7% gain had been expected in the Action Economics Forecast Survey. The two increases raised y/y productivity growth to 4.1%, the swiftest since Q1 2010. Real output improved 43.5% (-3.4% y/y) as it bounced back from a 36.8% decline. Hours worked strengthened 36.8% (-7.2% y/y) after falling 42.9%. Strength in productivity lowered unit labor costs by 8.9% (+2.5% y/y), reversing an 8.5% Q2 gain, revised from 9.0%. A 9.7% decline had been expected. Hourly compensation declined 4.4% (+6.7% y/y) after rising 20.0% in Q2.

Factory sector productivity increased a record 19.0% (0.7% y/y) as it bounced back from a 14.3% Q2 decline, revised from -14.6%. Durable manufacturing productivity surged 44.2%last quarter (0.4% y/y) following a 26.9% decline while nondurable manufacturing productivity improved 1.2% (0.5% y/y). Total manufacturing unit labor costs declined 18.2% (+3.8% y/y) during the third quarter after rising 28.4% in Q2, revised from 29.1%. Compensation fell 2.6% (+4.6% y/y) following three quarters of strong growth.

The productivity and labor cost figures are available in Haver's USECON database.

Productivity & Costs (SAAR, %) Q3'20 Q2'20 Q1'20 Q3 Y/Y 2019 2018 2017
Nonfarm Business Sector
Output per Hour (Productivity) 4.9 10.6 -0.3 4.1 1.7 1.4 1.2
Compensation per Hour -4.4 20.0 9.2 6.7 3.6 3.4 3.5
Unit Labor Costs -8.9 8.5 9.6 2.5 1.9 1.9 2.2
Manufacturing Sector
Output per Hour (Productivity) 19.0 -14.3 1.6 0.7 0.1 0.3 -0.4
Compensation per Hour -2.6 10.1 6.0 4.6 2.9 2.1 3.2
Unit Labor Costs -18.2 28.4 4.2 3.8 2.8 1.8 3.6
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