U.S. unit labor costs surge at its sharpest rate in decades

U.S. unit labor costs surge at its sharpest rate in decades

WASHINGTON – The costs of U.S. unit labor surged in the third quarter, while productivity declined at its sharpest pace since 1981, as a result of signs that high inflation could last for a while.

The Labor Department said that unit labor costs, the price of labor per single unit of output, increased last quarter at an 8.3% annualized rate, after rising at a 1.1% pace in the April-June quarter. Outside the coronaviruses, the jump in labor costs last quarter was the largest since the first quarter of 2020.

The forecast unit labor costs were increased at a 7.0% pace according to economists polled by Reuters.

The third quarter's growth was the largest on record in the last month, according to the report. The job openings were 10.4 million as of the end of August, which led to the increase in labor market dynamics.

The Federal Reserve's narrative that high inflation is transitory is questioned by strong wage gains and rising rents.

Inflation is well above the Fed's 2% target. The U.S. central bank announced on Wednesday that it would stop trimming its monthly bond purchases this month, but held on its belief that high inflation would be transitory.

The hourly compensation increased in the third quarter to a 2.9% rate after rising at a 3.5% pace in the prior period. The workers productivity fell as a 5.0% rate last quarter, which led to a surge in labor costs. It was the biggest drop since the second quarter of 1981 and followed a 2.4% growth pace in the April- June period.

Economists expected that productivity would fall at 3.0% rate. The productivity fell at a 0,5% rate compared to the third quarter of 2020. The pace of the second quarter was 5,9% higher last quarter's hours worked at a 7.0% rate last quarter.