Labor costs show surprise decline in the third quarter

The cost of labor unexpectedly declined in the third quarter, providing at least some relief on the inflation front, the Labor Department reported Thursday.

Unit labor costs, a measure of hourly compensation against productivity, fell 0.8% for the July-through-September period at a seasonally adjusted rate. Economists surveyed by Dow Jones had been looking for a gain of 0.7%. On a 12-month basis, unit labor costs increased 1.9%.

The breakdown reflected a 3.9% increase in hourly compensation, offset by a 4.7% rise in productivity.

That increase in productivity also was more than expected, beating the Dow Jones estimate for a rise of 4.3% for the biggest quarterly gain since the third quarter of 2020. Output climbed 5.9%, while hours worked rose 1.1%.

The developments come as the Federal Reserve is seeking to tamp down inflation through a series of interest rate increases.

On Wednesday, Fed Chair Jerome Powell said wage gains “have really come down significantly over the course of the last 18 months to a level where they’re substantially closer to that level that would be consistent with 2% inflation over time,” the central bank’s target.

In other economic news Thursday, initial filings for unemployment benefits for the week ended Oct. 28 totaled a seasonally adjusted 217,000, up 5,000 from the previous period and higher than the 214,000 estimate, the Labor Department said in a separate report.

Continuing claims, which run a week behind, totaled 1.82 million, an increase of 35,000 and higher than the 1.81 million FactSet estimate.