The productivity of American workers was flat in the summer, while wages were rising at the fastest clip in more than two decades – a combination likely to raise inflation concerns at the Federal Reserve.
The Associated Press reported that the Labor Department said Thursday (Nov. 2) that productivity, the amount of output per hour of work, showed no change in the July-September quarter, while labor costs rose by 3.8%. For the past year, wages and other labor costs are up by 5.3%, the fastest increase since 1982.
While rising wages and benefits are good news for workers, they raise concerns about inflation especially at a time when productivity is slowing. If companies decide to pass on their higher payroll costs by boosting the price of their products, that could translate into increased inflation.
In other economic news, orders to factories for manufactured products rose by 2.1% in September, the biggest increase in six months, but virtually all of the strength came in a surge in orders for commercial aircraft. The Commerce Department said that orders for long-lasting durable goods were up 8.3%, offsetting a 4.6% drop in demand for food, gasoline and other nondurable products.
Meanwhile, reports from the nation’s largest retailers indicate that consumers may have taken a breather in October after going on a shopping spree in September. But analysts said significant declines in gasoline prices should boost retail sales in the upcoming holiday season as consumers will have more to spend on other items.
The flat productivity reading in the third quarter was the poorest showing since a 0.1% decline in productivity in the final three months of last year. Over the past four quarters, productivity has risen by 1.3%, the weakest showing since a 1.1% rise in early 1997.
The Federal Reserve raised interest rates 17 consecutive times in an effort to slow the economy enough to bring inflation pressures under control. The Fed has left rates unchanged for three straight meetings, hoping that it has done enough to slow economic growth.
However, the significant slowing in productivity growth and the continued rise in wage pressures, if not reversed in coming quarters, could prompt the Fed to resume raising interest rates to fight inflation.