U.S. labor costs unexpectedly grew strongly in the third quarter, raising concerns about inflation in the U.S. once again

The U.S. Bureau of Labor Statistics reported on Thursday that U.S. labor costs unexpectedly grew strongly in the third quarter, far exceeding earlier expectations this year, which could exacerbate inflationary pressures.

The preliminary estimate for non-farm unit labor costs in the U.S. for the third quarter showed an annualized growth of 1.9%, significantly higher than the expected 1%. The previous quarter's figures were also revised upward, with the second quarter's non-farm unit labor cost increase adjusted from 0.4% to 2.4%. Unit labor costs refer to the expenses that businesses pay to employees to produce one unit of output.

During the third quarter from July to September, the annualized growth in productivity was 2.2%, similar to the increase in the second quarter. Productivity measures the output per hour of non-farm business employees.

Year-on-year, productivity in the third quarter grew by 2%, the slowest pace in over a year. Meanwhile, unit labor costs rose by 3.4% year-on-year, the highest level since the end of 2022.

In the third quarter, the growth rate of inflation-adjusted hourly wages accelerated to 3%, marking the seventh consecutive quarter where wage growth exceeded inflation.

The U.S. Bureau of Labor Statistics stated that this release includes revised historical data from the past five years, which provides information for the statistical results. The revised data shows that wage growth for Americans has significantly strengthened in recent quarters, explaining why consumers in the country have been able to drive the economy forward at a robust pace.

The latest data from the U.S. Bureau of Labor Statistics contrasts with other labor market-related data, such as non-farm payrolls, which indicate a slowing income growth trend. For example, the average hourly wage for non-farm workers in the U.S. rose by 4% year-on-year in October, in line with expectations, while the previous value was revised down from 4% to 3.9%.

The third quarter's non-farm unit labor costs, combined with a series of other strong economic data recently, could pose risks to inflation in the country, making the Federal Reserve's interest rate cut decisions more cautious in the coming months.

Bloomberg analysts pointed out that the decline in productivity and the upward revision of unit labor costs in the third quarter may prompt the Federal Reserve to take a more gradual approach to interest rate cuts, especially as the upward revision of labor costs will make Fed officials more cautious. Additionally, the return of Trump, whose policies are believed by many economists to exacerbate inflation, could also influence the Fed's policy path.

Later on Thursday, the Federal Reserve announced its November interest rate decision. The Fed cut rates by 25 basis points as expected, stating that the risks to employment and inflation targets are "roughly balanced," but the decision statement removed the wording about "gaining confidence in combating inflation." Some Fed watchers speculate that the removal of the phrase "gaining confidence in combating inflation" may suggest that policymakers are open to pausing rate cuts in December