Highlights
Growth in productivity slowed in the third quarter but still remained respectable, at a 2.2 percent annualized rate vs a strong and upward revised 3.0 percent in the second quarter.

Slowing productivity lifts the cost of labor and together with 3.5 percent growth in compensation, up from 1.9 percent compensation growth in the second quarter, made for a 1.2 percent climb in unit labor costs vs outright contraction in the second quarter, at an unrevised 1.0 percent.

Output slowed 9 tenths in the latest quarter but still came in strong, at a 4.1 percent growth rate. Hours worked also slowed, down 2 tenths to a 1.8 percent growth rate.

As evidenced by yesterday’s employment cost index, wages did pick up in the quarter with real compensation in today’s report rising at a 1.4 percent annual rate vs fractional gains and an outright decline in the prior three quarters.

The best of both worlds, of course, is to have strong real wage gains along with strong output and limited gains in hours worked — which is pretty much the mix of today’s report.

Consensus Outlook
Forecasters are looking for respectable growth of 2.3 percent in third-quarter nonfarm productivity vs a strong 2.9 percent increase in the second quarter. Unit labor costs in the second quarter, reflecting the rise in productivity, fell 1.0 percent and a rise of 1.1 percent is the third quarter’s call.

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