Third Quarter Productivity

Productivity increased in the third quarter according to the Bureau of Labor Statics’ preliminary tally.  In short, America produced an annualized 3.1 percent more an hour than in the second quarter of 2011.  The output managed to grow by 3.8 percent while it only took 0.6 percent more hours worked to produce the additional output.  From the third quarter of 2010 to the third quarter of 2011, output increased by 2.5 percent and hours worked ticked up 1.4 percent resulting in a 1.1 percent increase in productivity.  Gains in productivity are significant for a country that wants to export more since productivity growth helps keep prices competitive on the global market.  These gains also assist price stability in the US.

The advantages gained from productivity can be lost if wages grow too fast.  Unit Labor Costs measures the relationship between hourly compensation and the increase in productivity.  Third quarter wages rose only 0.6 percent which is less than the 3.1 percent gain in productivity; in general, this means the labor portion of an item’s cost fell and helped keep prices from rising.  Since labor is the largest cost to producers, sustained pressure from wages will eventually impact prices.   Over the last four quarters, hourly wages grew faster than productivity, so the latest quarter’s data is a pleasant development from an inflation perspective.  (by Christopher Cox)