Productivity Crashes More Than Expected, Worst Decline Since 1960

The productivity of U.S. workers in the third quarter of 2021 dropped at a rate of 5.2 percent, the Department of Labor said Tuesday.

Output rose 1.8 percent in the July through September period while the number of hours worked rose 7,4 percent. The figures are seasonally adjusted and annualized.

From the third quarter of 2020 to the third quarter of 2021, nonfarm business sector labor productivity fell 0.6 percent. This four-quarter rate is the largest decline since the fourth quarter of 1993, when the measure also declined by the same amount.

Economists had forecast productivity would decline by 4.9 percent, an improvement from the preliminary reading of five percent.

Unit labor costs soared at an annual rate of 9.6 percent in the third quarter of 2021, reflecting a 3.9-percent increase in hourly compensation and the decline in productivity. Unit labor costs increased 6.3 percent over the last four quarters.

That was more than expected. Analysts polled by Econoday had forecast unit labor costs to rise 8.3 percent, which was the reading in the preliminary report.

The government calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs and increases in productivity tend to reduce them.
Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers.

In the third quarter of 2021, both output and hours worked increased for the fifth consecutive quarter following historic declines in those measures in the spring of 2020. The output index is now 1.8 percent above the level seen before the pandemic struck.