US Productivity Accelerates to Strongest Pace in Two Years

Summary

Michael McKee reviews the final major US economic data ahead of the payrolls report. Jobless claims rose to 208,000 while Challenger layoffs fell, suggesting the labor market is holding up. The trade deficit narrowed sharply, and Q3 productivity accelerated to 4.9% while unit labor costs fell, which McKee calls potentially disinflationary. He says trade-deficit reduction is mostly irrelevant to the broader economy and notes productivity gains may be tied to AI while policy uncertainty keeps firms cautious on hiring.

• Initial jobless claims rose to 208,000, while Challenger layoffs fell in December.
• US trade deficit narrowed to $29.4 billion, with exports up and imports down.
• Q3 productivity rose 4.9%; unit labor costs fell 1.9%.
• McKee says the labor market is holding up despite holiday-week distortions.
• He views the smaller trade deficit as politically relevant but economically minor.
• He says sustained productivity gains would be disinflationary and may reflect AI.
• Policy uncertainty is cited as a reason companies are holding off on hiring.