After rising the most in three years during the prior quarter, US labor productivity notched another impressive increase in Q4, data released on Thursday showed.

The 3.2% jump exceeded every estimate from 42 economists. The range of guesses was 1.1% to 3%.

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

Employee hours rose 0.4% in Q4, the same release showed. Output increased 3.7%, far less than Q3. You net output and hours worked to get productivity.

Compensation per hour rose 3.7%, roughly the same as the prior period. 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 Q4, rising comp costs were enough to push up ULC despite the healthy increase in productivity.

The 0.5% increase came on the heels of a 1.1% decline in Q3. That drop, you’re reminded, was just the third quarterly decline since 2020 and only the second since inflation accelerated in Q2 of 2021.

Do note: The 0.5% increase was far slower than anticipated. Consensus expected a 1.2% jump.

Meanwhile, jobless claims rose to 224,000, the highest in 11 weeks and easily more than economists expected.

It was the second consecutive weekly increase, and with the caveat that we’ve seen more head fakes from the claims series than perhaps any other key release, Thursday’s update may suggest the labor market is loosening up a bit.

Continuing claims rose to 1.898 million, well above estimates and the second-highest print in over two years.

All in all, Thursday’s data, particularly when considered with the favorably cool ECI report on Wednesday and the ADP miss, skewed demonstrably dovish ahead of NFP.