U.S. Productivity Increases More than Expected in Q4
by:Sandy Batten
|in:Economy in Brief
Summary
- Nonfarm business output per hour rose 2.8% q/q SAAR in Q4 on top of an upward revision to Q3.
- Compensation jumped 5.7% q/q in Q4 resulting in a 2.8% quarterly increase in unit labor costs.
Nonfarm business productivity (output per hour) continued its robust rise in Q4, increasing 2.8% q/q SAAR following an upwardly revised 5.2% quarterly jump in Q3 (previously 4.9%). A quarterly gain of 1.9% was expected by the Action Economics Forecast Survey. Compared to a year ago, productivity rose 2.8% in Q3, up from an upwardly revised 2.4% in Q3 (previously 1.9%). The January employment report contained meaningful downward revisions to employment (and hours) in 2024 and 2025. However, there were no significant revisions to output, meaning that productivity growth was generally revised higher. Since productivity growth began to accelerate at the beginning of 2023, it has grown at a well above trend 2.8% annual rate. Strong productivity is a key factor for boosting real incomes and restraining inflation pressures.
Nonfarm business output increased 2.6% q/q in Q4 on top of unrevised gains of 5.4% q/q in Q3 and 5.2% quarterly in Q2 while hours worked edged down 0.2% q/q in Q4, the first quarterly decline since Q4 2023, versus a 0.2% quarterly increase in Q3 (previously 0.5% q/q). Compensation growth picked up to 5.7% q/q in Q4 from an upwardly revised 3.3% in Q3 (previously 2.9% q/q) in Q3. Compared to a year ago, compensation growth picked up to 4.1% in Q4 from 3.8% in Q3. Accordingly, with the slowdown in productivity and pickup in compensation, unit labor costs increased 2.8% q/q after quarterly decreases of 1.8% and 2.9% in Q3 and Q2, respectively. Compared to a year ago, unit labor cost growth was unchanged at 1.3%, the smallest annual gain since Q3 2023.
Factory output fell 2.2% q/q SAAR in Q4, its first quarterly decline in a year, following a slightly downwardly revised 2.9% in Q3 (previously 3.0%). Hours worked fell 0.3% in Q4, the sixth consecutive quarterly decline, following a 0.6% q/q decline in Q3. Consequently, factory productivity slumped 1.9% q/q, its first quarterly decline since Q3 2024, after having posted solid gains of 3.6% in Q3, 3.2% in Q2 and 4.6% in Q1. Factory compensation growth picked up to 6.4% q/q on top of a 4.8% quarterly jump in Q3. The combination of a decline in productivity and a meaningful rise in compensation led to an 8.3% quarterly surge in manufacturing unit labor costs in Q4, the largest quarterly increase since Q3 2022.
The productivity and labor cost data are available in Haver’s USECON database. The Action Economics expectations figures are in the AS1REPNA database.
Sandy Batten
AuthorMore in Author Profile »Sandy Batten has more than 30 years of experience analyzing industrial economies and financial markets and a wide range of experience across the financial services sector, government, and academia. Before joining Haver Analytics, Sandy was a Vice President and Senior Economist at Citibank; Senior Credit Market Analyst at CDC Investment Management, Managing Director at Bear Stearns, and Executive Director at JPMorgan. In 2008, Sandy was named the most accurate US forecaster by the National Association for Business Economics. He is a member of the New York Forecasters Club, NABE, and the American Economic Association. Prior to his time in the financial services sector, Sandy was a Research Officer at the Federal Reserve Bank of St. Louis, Senior Staff Economist on the President’s Council of Economic Advisors, Deputy Assistant Secretary for Economic Policy at the US Treasury, and Economist at the International Monetary Fund. Sandy has taught economics at St. Louis University, Denison University, and Muskingun College. He has published numerous peer-reviewed articles in a wide range of academic publications. He has a B.A. in economics from the University of Richmond and a M.A. and Ph.D. in economics from The Ohio State University.
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