Productivity Decrease is the Largest Since 1960 as Labor Costs Jump


On Tuesday, the U.S. Bureau of Labor Statistics reported that nonfarm business sector labor productivity decreased 5.2% in the third quarter of 2021, as output increased 1.8% and hours worked increased 7.4%.


· This is the largest decline in quarterly productivity since the second quarter of 1960, when the measure decreased 6.1%


· From the third quarter of 2020 to the third quarter of 2021, nonfarm business sector labor productivity decreased 0.6%


· This four-quarter rate is the largest decline since the fourth quarter of 1993, when the measure also declined 0.6%



Labor Costs Up Unit labor costs in the nonfarm business sector increased at an annual rate of 9.6% in the third quarter of 2021, reflecting a 3.9% increase in hourly compensation and a 5.2% decrease in productivity. Unit labor costs increased 6.3% over the last four quarters.


Further:

· In the third quarter of 2021, both output and hours worked increased for the fifth consecutive quarter following historic declines in those measures in the second quarter of 2020.

· The output index is now 1.8% above the level seen in the fourth quarter of 2019, the last quarter not affected by the COVID-19 pandemic, while the hours worked index remains 1.0% below its fourth quarter 2019 level.

The nonfarm business labor productivity index is 2.8% higher in third-quarter 2021 than it was in fourth-quarter 2019, corresponding to an annualized growth rate of 1.6% during the pandemic period of fourth quarter 2019 through third quarter 2021. This rate is slightly higher than the 1.4% average annual growth rate during the previous business cycle – from 2007 to 2019 – but below the long-term average rate since 1947 of 2.1%.


Nonfinancial Corporate Sector Preliminary third-quarter 2021 measures were announced today for the nonfinancial corporate sector.

· Productivity increased 0.7% in the third quarter of 2021 as output and hours worked increased 6.8% and 6.1%, respectively.

· As in the larger


nonfarm business sector, both output and hours worked in the nonfinancial corporate sector have increased in each of the last five quarters.

· Output is now 5.2% above the fourth quarter 2019 level, while hours worked remain 1.2% lower than in fourth-quarter 2019, the last quarter not affected by the COVID-19 pandemic.

· Productivity increased 5.5% in the nonfinancial corporate sector over the last four quarters.

· Unit profits of nonfinancial corporations increased at an 8.3% annual rate in the third quarter of 2021 and increased 11.3% over the last four quarters.

More Data Later This Week More economic data will be released later this week, including the JOLTS Report on Wednesday; Jobless Claims on Thursday and CPI data on Friday.