In the third quarter of the United States, non-farm business labor productivity grew at an annualized rate of 3.6%. Output increased by 3.7%, while hours worked only increased by 0.1%, indicating that businesses produced more with almost the same amount of working time. Preliminary figures released by the U.S. Bureau of Labor Statistics on November 5 also showed that unit labor costs fell by 0.7% on a quarterly basis when adjusted for inflation. In terms of efficiency and cost, this is a very impressive report card.

But in the same report, there is another figure: the share of labor income in non-agricultural business output has dropped to 53.0%, which is the lowest level since this series began in 1947. Increased productivity does not mean that the newly created value has proportionally gone into employees' incomes. This contrast is the most noteworthy part of these data.

Cost pressures have eased, but how to allocate profits remains an issue.

Unit labor cost takes into account both the growth rate of hourly wages and productivity. If the output per hour of work increases more rapidly, even if wages rise, the labor cost incurred by businesses to produce each unit of product can decrease. This combination occurred in the third quarter. It helps to alleviate the pressure on businesses to raise prices and may also leave room for profits and investment.

The question is, through what channels will the efficiency gains be distributed. They can manifest as higher wages, lower selling prices, greater profits, or investments in new equipment. The actual hourly compensation saw a year-on-year increase of 1.1% this quarter, and a 1.0% increase compared to the same period last year, indicating that employees' purchasing power has not stopped improving; however, the labor share has reached a long-term low, suggesting that there is still a gap between output growth and labor income growth.

A quarter of rapid growth, but it still needs to be viewed within the context of the cycle.

Compared to the same period last year, non-agricultural business productivity increased by 2.1%. Since the beginning of the current business cycle, the annualized productivity growth rate has been 2.2%, which is roughly in line with the long-term average and higher than the 1.5% of the previous cycle. This indicates that this quarter's improvement is not just a isolated piece of good news, but it is not enough in itself to prove that the economy has entered a new era of high efficiency.

The performance of the manufacturing sector was more modest, with productivity increasing by only 0.3%, while the cost per unit of labor rose by 2.7%, a year-on-year increase of 4.0%. This reminds us that the high productivity growth in the overall non-agricultural business sector is not evenly distributed across all sectors. Changes in digital services, management processes, and inventory management can contribute to strong overall indicators, but factories still face real constraints related to raw materials, equipment, and shift schedules.

This set of data represents initial values. BLS plans to release the revised results on December 8th, and the current estimates have already taken into account the revisions to the U.S. National Income and Product Accounts. Therefore, 3.6% should be regarded as a strong but still revisable quarterly signal. The most positive implication is that higher output did not rely on a significant increase in working hours; the most difficult aspect to determine is how this growth will be allocated among wages, prices, profits, and investments, which will require more time and data to answer.

The source of productivity determines how far this growth can go.

With almost no change in working hours but an increase in output, this could be due to investments in software and equipment, or it could be that companies are reusing idle capacity as demand picks up. The former may continue to change processes, while the latter will slow down once capacity utilization returns to normal. Based on just one quarter's annualized rate, it is not yet possible to fully distinguish between these two factors.

The employment structure also affects these figures. If low-productivity jobs are reduced more rapidly, and the remaining jobs have higher average output, then overall productivity will increase. However, this does not mean that every job has achieved a technological breakthrough. It is only when various industries can increase output while maintaining stable employment that we can speak of a broader improvement in efficiency.

For managers, increased productivity is not a sufficient reason for layoffs. If the benefits of efficiency are only used to reduce working hours and labor share, short-term profits may improve, but consumer capacity and organizational experience could be weakened. A healthier approach is to use a portion of these benefits for employee training, wages, and new investments, to provide a more solid foundation for the next round of growth.

At the policy level, we also need to consider two aspects simultaneously. One is whether the unit labor cost continues to slow down, as this will affect the pricing pressure on enterprises; the other is whether actual compensation and labor shares can recover, as this will impact household demand. If only the first aspect improves, inflationary pressures may decrease, but the foundation for growth in households may not necessarily strengthen accordingly. This is why a strong productivity report still needs to be read in conjunction with wage, employment, and consumption data. The quality of efficiency growth ultimately needs to be verified on both the corporate and household fronts.