Productivity Runs at 2.4% While Unit Labor Costs Cool to 2.1%: The Immaculate Disinflation Trade Reopens

2026-10-31, FP360 — Non-farm business labor productivity rose at a 2.4% annualized pace in Q3 while unit labor costs cooled to 2.1%, the first back-to-back quarters of ULC growth under 2.5% since 2023. The Bureau of Labor Statistics print means workers are producing more per hour than employers are paying for it, and that arithmetic is the single biggest reason the Fed keeps telling markets it can hold the funds rate at 4.25% without breaking the labor market.

The Signal: Cooling unit labor costs validate the Fed's higher-for-longer hold and steepen the front end of the curve rather than the long end.

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Originally published on FINPULSE 360