Weak US third-quarter unit labor costs point to slowing inflation
By Lucia Mutikani
WASHINGTON (Reuters) — U.S. unit labor costs were much weaker than initially thought in the third quarter amid robust worker productivity, providing a boost to the Federal Reserve's fight against inflation.
The inflation outlook was further brightened by other data on Wednesday showing a moderation in wage growth in November. The reports followed news on Tuesday that job openings dropped to a more than 2-1/2-year low in October.
They strengthened financial market expectations that the U.S. central bank was done tightening monetary policy and could pivot to cutting rates as early as the first quarter of 2024.
«The decline in labor costs points to a further slowdown in services inflation, the last front in the Fed's effort to bring inflation back to 2%,» said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York. «Our baseline forecast assumes that rate cuts don't start until the third quarter of next year, although the risk may be growing that the Fed starts sooner.»
Unit labor costs — the price of labor per single unit of output — fell at a 1.2% annualized rate in the third quarter, the Labor Department's Bureau of Labor Statistics (BLS) said, revised down from the previously reported 0.8% pace of decline. That was the first drop since the fourth quarter of 2022.
Economists polled by Reuters had expected that the decrease in unit labor costs would be revised down to a 0.9% rate.
Growth in unit labor costs was lowered to a 2.6% rate in the second quarter from the previously reported 3.2% pace. Unit labor costs rose at a 1.6% rate from a year ago in the third quarter, the smallest year-on-year increase since the second quarter of 2021.
The moderate growth in annual labor costs bodes
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