Labor Costs Surge in the Third Quarter; Productivity Falls Sharply

Reuters (11/04/21) Mutikani, Lucia

Unit labor costs spiked in the third quarter, while productivity decreased at its sharpest pace since 1981, adding to signs that high inflation could last for a while. Unit labor costs rose at an 8.3% annualized rate last quarter after increasing at a 1.1% pace in the April-June quarter, according to the U.S. Department of Labor. Outside the coronavirus distortions in 2020, the surge in labor costs last quarter was the biggest since the first quarter of 2014. Labor costs rose at a 4.8% rate compared with a year ago. Economists surveyed by Reuters had anticipated unit labor costs accelerating at a 7.0% pace.

The increase in labor costs came at the expense of worker productivity, which declined at a 5.0% rate last quarter. That was the largest decrease since the second quarter of 1981 and followed a 2.4% growth pace in the April-June period. Economists had forecast productivity would decline at 3.0% rate. Compared with the third quarter of 2020, productivity dropped at a 0.5% rate.

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