US 4th-Quarter Labor Costs Revised Higher; Productivity Growth Lowered

WASHINGTON—U.S. WASHINGTON–U.S.

Unit labor costs—the price of labor per single unit of output—accelerated at a 3.2 percent annualized rate last quarter, the Labor Department said on Thursday. This was an increase from the 1.1% pace last month.

In the third quarter, labor costs increased at 6.9% compared to the previous two quarters. However, they saw substantial gains in both the first and second quarters. Reuters polled economists and predicted that labor costs would rise at a rate of 1.6 percent. The unit labor cost of living increased at a rate of 6.3 percent compared to a year earlier, revising up from the previously reported pace of 4.5 percent.

They jumped 6.5 percent to 2022 instead of 5.7% as reported last month. This is too fast for the Federal Reserve’s 2 percentage inflation target. Fears that the Fed will continue raising interest rates this summer have been fueled by tight labor markets and persistently high inflation.

Although the U.S. central banks are expected to announce two more 25-basis point rate increases in March and May respectively, financial markets expect another in June. The Fed has raised its policy rate by 450 basis points since last March from near-zero to a 4.50 percent–4.75 percent range.

Hourly compensation rose at a rate of 4.9 percent, rather than the previously reported 4.1 percent. It grew at a rate of 4.4 percent compared to the fourth-quarter 2021, and rose by 8.2 percent in the third quarter.

Nonfarm productivity growth, which measures hourly output per employee, fell to 1.7 percent from 3.0 percent in the fourth quarter. Labor costs were revised higher. Economists predict that productivity growth will be lowered to 2.6 percent.

Data last week showed that productivity fell to 2.7 percent from the previous estimate of 2.9 percent.

In the third quarter, productivity grew by 1.2 percent. The rate of productivity decline was 1.8% compared to last year. In 2022, productivity declined by 1.7 percentage. This is a revision to the 1.3 percent reported last month.

The large changes in the workforce after the pandemic made it difficult to see how productive the workers were.