The U.S. Department of Labor announced a notable revision in unit labor costs for the third quarter, suggesting a more optimistic inflation outlook despite limited moderation in price increases in recent months.
- Unit Labor Costs: Revised to a 0.8% annualized growth rate, down from the previously reported 1.9%. This was lower than economists’ expectations of a 1.5% growth rate, as per a Reuters poll.
- Second Quarter: Labor costs showed a revised 1.1% decline, instead of the earlier reported 2.4% increase. Year-over-year, costs rose 2.2%, significantly below the initial estimate of 3.4%.
Implications for Inflation and Monetary Policy
The downward revisions indicate that labor cost pressures on inflation may not be as intense as previously thought. This bolsters the case for a continued easing of monetary policy by the Federal Reserve.
- Federal Reserve Outlook: The central bank is widely expected to implement a 25 basis point rate cut next week, marking its third reduction since initiating its monetary easing cycle in September.
Productivity Growth Unchanged
Nonfarm productivity, a measure of hourly output per worker, remained steady at an annualized growth rate of 2.2%, aligning with prior estimates.
Conclusion
The lower-than-anticipated growth in unit labor costs aligns with a more favorable inflation trajectory, offering the Federal Reserve further justification for rate cuts as it seeks to balance economic growth with price stability.
