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Economy in Brief

U.S. Productivity Declines & Unit Labor Costs Surge in Q3'21
by Tom Moeller  November 4, 2021

• Nonfarm productivity plunges, following two quarters of increase. 

• Compensation surges again.

• Unit labor costs strengthen to record high.

Nonfarm business sector productivity fell 5.0% (SAAR) during Q3'21 following a 2.4% Q2 increase, revised from 2.1%. It was the sharpest decline since Q2'81. A 1.8% decline had been expected in the Action Economics Forecast Survey.

Nonfarm business production grew 1.7% last quarter (6.1% y/y). The gain was the smallest in five quarters. Growth of hours-worked surged to 7.0% (6.7% y/y), the strongest rise in three quarters.

Compensation per hour rose 2.9% (4.3% y/y), the fourth straight quarter of growth.

The rise in compensation and the fall in productivity combined to lift unit labor costs 8.3% to a record level, following a 1.1% increase in Q2. A 5.6% increase had been expected.

In the manufacturing sector, productivity declined 1.0% after surging 8.5% in Q2. Output rose a steady 5.7% last quarter (6.3% y/y) and hours-worked increased 6.7% (3.8% y/y) after falling 2.5%.

Factory sector compensation rose 1.9% in Q3, firm for the fourth straight quarter. Unit labor costs rose 2.9% and reversed much of the Q2 decline.

Compensation and labor costs figures are available in Haver's USECON database. This latest report includes historical revisions related to recent revisions in Nation Income and Product Accounts and industrial production. The expectations figure is in the AS1REPNA database.

Productivity & Costs (SAAR, %) Q3'21 Q2'21 Q1'21 Q3'21 Y/Y 2020 2019 2018
Nonfarm Business Sector
   Output per Hour (Productivity) -5.0 2.4 4.3 -0.5 2.4 2.0 1.5
   Compensation per Hour 2.9 3.5 1.4 4.3 7.0 3.8 3.4
   Unit Labor Costs 8.3 1.1 -2.8 4.8 4.5 1.8 1.9
Manufacturing Sector
   Output per Hour (Productivity) -1.0 8.5 -0.8 2.4 0.3 -1.4 -0.1
   Compensation per Hour 1.9 4.7 0.6 4.3 6.8 2.8 2.2
   Unit Labor Costs 2.9 -3.5 1.4 1.9 6.5 4.3 2.3
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