Labor costs show slower rise, while trade deficit widens and jobless claims nudge lower

The cost of labor rose less than expected, but low productivity helped keep the pressure on inflation in the third quarter, according to Labor Department data released Thursday.

Unit labor costs, a measure of productivity against compensation, increased 3.5% for the July-to-September period, below the 4% Dow Jones estimate and down from 8.9% in the second quarter.

However, productivity rose at just a 0.3% annualized rate, below the 0.4% estimate — a reflection of upward price pressures that have kept inflation running around 40-year highs.

In an effort to bring down soaring prices, the Federal Reserve on Wednesday enacted its sixth interest rate increase of the year, bringing its benchmark short-term borrowing rate to a target range of 3.75%-4%. Fed Chair Jerome Powell said he doesn’t think wage pressures have been a major contributor to inflation, though he added that the current pace is not consistent with the Fed’s 2% inflation goal.

“In such a high inflation environment, productivity growth could play a critical role in alleviating cost pressures and shielding companies against a rising wage bill,” said Lydia Boussour, senior economist at EY Parthenon. “But today’s report indicate businesses still can’t count on productivity gains to mitigate the effects of high inflation on their bottom line.”

In other economic news, the September trade deficit widened to $73.3 billion. That’s $1 billion more than expected and up from August’s $65.7 billion.

An unexpected increase in exports helped fuel a 2.6% gain in gross domestic product for the third quarter. September’s numbers, though, indicate that average exports fell $300 million, though they are up 20.2% year to date.

Labor market data released Thursday showed that the jobs picture hasn’t changed much.

Weekly unemployment insurance claims totaled 217,000 for the week ended Oct. 29, lower by 1,000 from the previous period and slightly below the 220,000 estimate. Continuing claims, which run a week behind the headline number, increased 47,000 to 1.485 million, the Labor Department reported.

At the same time, outplacement firm Challenger, Gray & Christmas reported that announced layoffs for October jumped 13% to the highest monthly rate since February 2021.

The jobs data come the day before the Labor Department releases its nonfarm payrolls report for October, which is expected to show a gain of 205,000.