Rising productivity, falling unit labor costs

US nonfarm businesses produced more per hour in the third quarter, allowing labor costs per unit of output to fall even as hourly compensation rose. For Bitcoin, the data offer a potential offset to jobs-driven rate fears: if lower cost pressure helps cool inflation and expected interest rates, financing could become less expensive.

The Bureau of Labor Statistics' preliminary November 5 release showed nonfarm business productivity rising 3.6%, as output increased 3.7% and hours worked rose 0.1%. Hourly compensation increased 2.9%, while unit labor costs fell 0.7%. All of the quarterly changes are seasonally adjusted annualized rates.

Unit labor costs track compensation relative to output. The BLS derives the measure by dividing hourly compensation by productivity: when each hour produces more, businesses can pay more per hour without incurring higher labor costs for each unit they produce.

October payrolls complicate the inflation read

That complicates any reading of the November 6 employment report as an automatic inflation warning. October payrolls increased 165,000, above the prior 12 months' average monthly gain of 48,000. Average hourly earnings for private nonfarm employees rose 0.4% over the month and 3.1% over a year.

The two reports cover different periods and measures. Third-quarter productivity does not establish how productive workers were in October, and its annualized growth rate cannot simply be subtracted from monthly earnings growth. Higher hiring and pay alone leave the question of labor costs per unit of output unanswered.

Costs remain elevated year over year

Nonfarm business unit labor costs were still 2.4% higher than a year earlier. The quarterly decline eases one source of cost pressure, while leaving both the durability of that improvement and its effect on consumer prices unsettled. Because the productivity figures are preliminary, subsequent BLS revisions could move the quarter's numbers in either direction.

The Federal Reserve's latest decision illustrates the policy tension. On October 28, before either November labor release, the Federal Open Market Committee held its target range at 3.75% to 4.00% in a 10-2 vote, with Lisa Cook and Beth Hammack preferring a quarter-point increase. The accompanying statement described productivity growth as strong while calling inflation elevated. The two conditions already coexisted in the Fed's assessment, limiting the case for treating better productivity as an automatic signal of easier policy. The committee's next scheduled meeting, on December 9-10, will be its first opportunity to weigh the new labor data.

Implications for Bitcoin financing

Rate decisions and monthly labor reports are fixtures on crypto market calendars, where traders parse them for what they imply about funding conditions. For Bitcoin, the financing channel depends on what happens to rate expectations. Expected short-term rates can influence longer-term rates, borrowing terms, and the relative attractiveness of assets. A sustained decline in inflation pressure could ease a potential rates headwind for Bitcoin if it brings lower expected rates and funding costs. Persistent inflation or upward revisions to labor costs would weaken the case for relief in Bitcoin prices.

Source: CryptoSlate