US Nonfarm Productivity Rises 3.2% as Labor Costs Rebound – Labor Department Update

Summary

  • Nonfarm productivity saw a growth of 3.2% in the previous quarter.
  • The cost of labor per single unit output recorded a bounce back, growing at 0.5% after a decrease at a rate of 1.1% in the July-September quarter.
  • Compensation costs in the fourth quarter increased at a slower pace, the least since 2021.
  • There has been no change in the interest rates by the U.S. central bank, as confirmed by Fed Chair Jerome Powell.
  • The policy rate has been raised by the Fed by 525 basis points, now standing at 5.25%-5.50%, from March 2022.

Nonfarm Productivity and Labor Costs

The U.S. Bureau of Labor Statistics reported that nonfarm productivity – the efficiency measurement of worker’s hourly output – rose by an annual rate of 3.2% in the recent quarter.

Statistics also indicate a recovery in unit labor costs which represents the per-unit labor expenses. There had been a rebound at a 0.5% rate following a 1.1% drop in the third quarter of the year.

Compensation Costs and Monetary Policy

The financial news from Wednesday revealed a relatively sluggish rise in remuneration costs in Q4, slowest since the year 2021. On the same day, the U.S. central bank decided to maintain the status quo on interest rates. Fed Chair Jerome Powell commented that the economy is likely to see a decrease in policy restraint this year given the optimistic progress of the economy.

The central bank has upped its policy rate by a substantial 525 basis points to the prevailing rate of 5.25%-5.50% since March 2022. This could impact Forex or other trading assets, as changes in monetary policy often have profound effects on the financial markets.

Labor Market and Jobless Claims

A steady relaxation is also observed in the labor market, which could eventually help in limiting wage inflation. As per the statements of the Labor Department on Thursday, the opening claims for state unemployment benefits showed a rise of 9,000, leading to a seasonally adjusted 224,000 for the week ended Jan. 27. Estimated forecasts had anticipated 212,000 claims for the latest week.

Employment Changes

It’s noteworthy that employers are retaining their workers owing to the workforce shortage during the COVID-19 pandemic. However, some businesses that thrived during the pandemic have started staff cutbacks as the situation moves back to regular patterns. Renowned logistics firm, United Parcel Service (NYSE:) intends to slash 12,000 jobs this week.

Layoff Trend

In a different report, global outplacement firm Challenger, Gray & Christmas reported that U.S.-based firms announced job cuts of 82,307 in January, marking a 136% surge from December. However, the layoff figures are still down by 20% compared to January 2023.

The claims data are not influential on the employment report for January to be released on Friday.

Overall, the fluctuations in labor costs and productivity, coupled with the monetary decisions by the Fed, can generate significant impacts on Forex and other trading assets. Traders should closely monitor these indicators while positioning their investments.

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