US nonfarm business productivity grew faster than hourly compensation in the third quarter, bringing unit labor costs down at a 0.7% annualized rate. The data offer another measure of whether wage growth is adding to inflation—and could inform expectations for Federal Reserve policy. If cost pressures continue to ease, financing conditions could improve and reduce one source of pressure on Bitcoin. But unit labor costs were still 2.4% higher than a year earlier, and one quarter’s decline does not establish an inflation trend or signal a policy shift.
Productivity outpaced hourly compensation in Q3
Preliminary data released by the US Bureau of Labor Statistics on November 5 showed nonfarm business labor productivity rose 3.6% in the third quarter. Output increased 3.7%, while hours worked edged up 0.1%. Hourly compensation rose 2.9%, and unit labor costs fell 0.7%. All quarterly changes are reported at seasonally adjusted annual rates.
Unit labor costs measure the compensation businesses pay for each unit of output. They are calculated by dividing hourly compensation by labor productivity. When productivity rises, businesses can pay more per hour while spending less on labor for each unit produced. Wage growth alone, therefore, does not show whether employers’ costs per unit are also increasing.
October jobs figures cover a different period
The BLS reported on November 6 that nonfarm payrolls increased by 165,000 in October, above the average monthly gain of 48,000 over the previous 12 months. Average hourly earnings for private nonfarm employees rose 0.4% from September and 3.1% from a year earlier. The employment and pay figures point to continued labor-market growth, but they do not by themselves show that wage pressures are translating into higher unit costs.
The two reports cover different periods and use different measures. The third-quarter productivity figures do not describe workers’ productivity in October, and an annualized quarterly productivity rate cannot be directly subtracted from a one-month change in hourly pay. Assessing labor costs requires comparing compensation with productivity over time and accounting for later revisions.
Unit labor costs remain up 2.4% year over year
Despite the quarterly decline, unit labor costs were 2.4% higher than a year earlier. The latest reading points to some easing in cost pressures, but it remains uncertain whether that improvement will last or feed through to consumer prices. Unit labor costs are not a measure of consumer-price inflation, so the decline alone does not show that overall inflation has cooled.
The Federal Reserve’s October 28 policy decision came before the two November labor reports. The Federal Open Market Committee voted 10-2 to keep its federal funds rate target range at 3.75% to 4.00%. Lisa Cook and Beth Hammack favored a 25-basis-point increase. The committee described productivity growth as strong but also said inflation remained elevated, underscoring that productivity gains do not automatically point to easier monetary policy.
Bitcoin’s rate outlook still hinges on inflation
Interest-rate expectations can affect longer-term yields and borrowing conditions, changing the relative appeal of different assets. If productivity gains persist, restrain unit costs and contribute to easing inflation, expectations for future rates and financing costs could shift, potentially easing an interest-rate headwind for Bitcoin.
If inflation stays elevated—or later data revisions show renewed pressure on labor costs—expectations for lower rates could weaken. For now, the third-quarter productivity and unit-cost figures provide one view of cost pressures. They do not, on their own, indicate how the Fed will adjust policy or show that Bitcoin has responded in a particular way.