Analysts at Wells Fargo, note that Nonfarm productivity unexpectedly contracted during the third quarter following strong gains in the first half of the year. They point out that weak performance added to the pickup in unit labor costs. 

“Productivity contracted at an annualized 0.3% pace in Q3 as a 2.4% increase in hours worked more than offset a 2.1% gain in business output.

We continue to expect productivity to moderate in the coming quarters, though with the pace remaining stronger than the 1% average registered since 2011.

Tight labor market conditions pushed compensation costs up at a 3.3% clip in Q3. Unit labor costs (ULC) - a better measure of inflation pressure - rose at an even stronger 3.6% pace.

As wages climb higher and productivity moderates, rising ULCs are apt to put greater pressure on corporate profits in coming quarters.”