US investors were treated to a dovish hat trick on Thursday, when data showed productivity grew by the most in three years, labor costs fell and jobless claims increased.

The 4.7% increase in productivity for Q3 topped consensus, which was looking for 4.3%. The range, from more than three-dozen economists, was 2.8% to 5.4%.

This matters. Higher productivity is one way (the best way) to sustain robust growth outcomes without unacceptably high inflation.

As a reminder, productivity is just output per hour. You want more of it so that your unit labor costs fall.

There are various ways to go about increasing productivity. In frontier markets, they like beatings, chains and whips. In the developed world, we prefer subtler forms of worker coercion or, ideally, technological innovation so that we don’t need workers at all. That’s why the A.I. narrative (pipe dream?) is so important.

Note that unlike Q2, hours worked rose in Q3. Output increased nearly 6% against a 1.1% increase in hours. You net that to get productivity. Compensation per hour rose 3.9%, much cooler than the prior quarter’s increase.

It’s the juxtaposition between falling productivity and surging wages that pushes unit labor costs higher. So, if productivity is rising and wage growth is cooler, unit labor costs should be lower. In Q3, they were.

The 0.8% decline was just the third quarterly drop since 2020 and just the second since inflation accelerated in Q2 of 2021. Economists expected a 0.3% increase.

On a YoY basis, productivity rose 2.2% and unit labor costs were up 1.9%. Recall that productivity fell on a YoY basis for five straight quarters through Q1 of 2023, a virtually unprecedented event.

Meanwhile, initial jobless claims rose to 217,000 last week. That’s not a lot (in fact, it’s the opposite of a lot), but it nevertheless counted as the highest since September 9. At 1.818 million, continuing claims for the prior week were the highest since April 15.

Taken together, Thursday’s US macro data was dovish. Or at least that’s the way the market should interpret it. As usual, there’s no guarantee traders (carbon-based and otherwise) will see it that way, and Friday’s NFP report will decide that week.

But whatever the jobs report brings, the productivity and ULC prints had a Goldilocks vibe, and although initial claims are still very subdued, indicative of a tight labor market, the bounce from last month’s “since January” lows at least suggests some nascent softening, particularly when considered with continuing claims.

All of this should be contextualized by the bond-bullish read-through of the smaller-than-expected refunding, the big ISM miss mid-week and, of course, the distinct possibility that the Fed is finished raising rates.