Breaking News

U.S. unit labor costs decline for two straight quarters

Economic IndicatorsDec 06, 2017 12:52PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: Workers build the roof of a single axel towable Pioneer traditional recreational vehicle in Elkhart

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. unit labor costs were much weaker than initially thought, declining both in the second and third quarters of this year, pointing to very benign inflation pressures in the near term even as the labor market is close to full employment.

Other data on Wednesday showed private-sector employment increasing at a solid clip in November, with the manufacturing sector adding the most jobs in at least 15 years.

The signs of soft wage growth and tightening labor market conditions could further intensify inflation debate at the Federal Reserve's policy meeting next week. Economists, however, believe that wage growth is being understated.

"The weakness in unit labor costs will undoubtedly be cited by many as evidence that worries about the economy overheating due to a tightening labor market are misplaced," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

"But we believe that the official wage income data being used for calculations have been distorted recently by income reporting being delayed in anticipation of tax cuts, and Commerce Department analysts may be misinterpreting information from quarterly tax records."

The Labor Department said unit labor costs, the price of labor per single unit of output, dropped at a 0.2 percent annualized rate in the last quarter instead of rising at a 0.5 percent pace as reported last month.

That followed a 1.2 percent rate of decline in the second quarter, which was previously reported as a 0.3 percent pace of increase. It was the first time since 2014 that unit labor costs recorded two straight quarterly declines.

The downward revisions would suggest that inflation could struggle to rise toward the Fed's 2 percent target. The U.S. central bank's preferred inflation measure is currently at 1.4 percent and has been below the Fed's target for nearly 5-1/2 years.


Prices for U.S. Treasuries were trading higher and the dollar rose marginally against a basket of currencies. Stocks on Wall Street were little changed in volatile trade.

"Low unit labor cost growth keeps a lid on consumer inflation, but should be a boon for corporate profitability," said Scott Anderson, chief economist at Bank of the West in San Francisco.

Compared to the third quarter of 2016, unit labor costs declined at a 0.7 percent rate. The increase in average hourly compensation was revised to down to a 2.7 percent rate from the previously reported 3.5 percent rate in the third quarter.

Separately, the ADP National Employment Report showed private employers added 190,000 jobs last month, though this was down from 235,000 jobs in October. The report is jointly developed with Moody's Analytics.

Services-sector employment gains led the advance, with the largest increase coming in education and health services at 54,000, followed by professional and business services at 47,000. Manufacturing payrolls increased by 40,000 jobs, the most in the ADP series history dating back more than 15 years, while construction shed 4,000.

"The job market is red hot, with broad-based job gains across industries and company sizes. The only soft spots are in industries being disrupted by technology, brick-and-mortar retailing being the best example," Mark Zandi, chief economist of Moody’s Analytics, said in a statement. "There is a mounting threat that the job market will overheat next year."

The ADP figures come ahead of the U.S. Labor Department's more comprehensive non-farm payrolls report on Friday, which includes both public- and private-sector employment.

Economists polled by Reuters expect the government report to show U.S. private payroll employment grew by 190,000 jobs in November, down from 252,000 the month before. Total non-farm employment is forecast to have risen by 200,000.

U.S. unit labor costs decline for two straight quarters

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email