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Economy in Brief

U.S. Nonfarm Productivity Plunges and Unit Labor Costs Surge in Q3'21
by Kathleen Stephansen, CBE  December 7, 2021

• Q3 nonfarm productivity is revised down from preliminary estimate.

• Compensation is sharply up.

• Unit labor costs reach record high level.

Nonfarm business sector productivity fell 5.2% (SAAR) (-0.6% y/y) in Q3'21, revised from a preliminary 5.0% decline and following a 2.4% Q2 increase. It was the sharpest decline since Q2'60. A 5.0% decline had been expected in the Action Economics Forecast Survey.

Nonfarm business production grew 1.8% last quarter (6.2% y/y). The gain was the smallest in five quarters. Growth of hours-worked surged to 7.4% (6.8% y/y), the strongest rise in three quarters.

Compensation per hour rose 3.9% (5.8% y/y), the fourth straight quarter of growth and revised from a preliminary rise of 2.9%.

The rise in compensation and the fall in productivity combined to lift unit labor costs 9.6% (6.3% y/y) to a record level, revised from a preliminary rise of 8.3%, and following a 5.9% increase in Q2. An 8.3% increase had been expected.

In the manufacturing sector, productivity declined 1.8% (2.2% y/y), revised down from 1.0% and after surging 8.4% in Q2. Output rose 5.1% last quarter (6.1% y/y), revised down from a 5.7% rise, and hours-worked increased 7.0% (3.9% y/y), revised up from a 6.7% rise and after falling 2.5% in Q2. Factory sector compensation rose 2.7% in Q3, firm for the fourth straight quarter. Unit labor costs rose 4.6%, revised up from a 2.9% increase and following a 1.7% rise in Q2.

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) -5.2 2.4 4.3 -0.6 2.4 2.0 1.5
   Compensation per Hour 3.9 8.4 1.4 5.8 7.0 3.8 3.4
   Unit Labor Costs 9.6 5.9 -2.8 6.3 4.5 1.8 1.9
Manufacturing Sector
   Output per Hour (Productivity) -1.8 8.4 -0.8 2.2 0.1 -1.4 -0.1
   Compensation per Hour 2.7 10.2 0.6 5.9 6.8 2.8 2.2
   Unit Labor Costs 4.6 1.7 1.4 3.7 6.6 4.3 2.3
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