US non-farm labour productivity posts largest drop since 1981

Labour productivity in the US dropped much more sharply than was expected during the third quarter, registering its largest decline since 1981.

According to the Department of Labor, in seasonally adjusted terms, non-farm labour productivity dropped at a quarter-on-quarter pace of 5.0% over the three months ending in September (consensus: -1.3%).

As a result, labour costs were 8.3% higher.

Unit labor costs had been expected to rise by a more moderate 5.4^.

In comparison to a year ago, productivity was 0.5% lower and labor costs up by 5.4%.

Commenting on the latest data, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said they reflected the hit to growth from Covid-19 but told investors nothing about the underlying trend.

"We remain optimistic that productivity growth will average 2%-plus over the next couple years, at least, as firms use some of their abundant resources to start rebuilding the capital stock, following a cycle in which businesses persistently under-invested," he said in a research report sent to clients.

"The consensus forecasts were insufficiently gloomy for Q3 because most estimates appeared to take no account of the 18% annualized surge in self-employment, which drove up hours worked, depressing productivity growth and boosting unit labor costs."