Higher wages don’t have to mean higher inflation. That could matter for Bitcoin

US nonfarm businesses produced more per hour in the third quarter, allowing labor costs per unit of output to fall even as hourly compensation rose. For Bitcoin, that offers a potential offset to jobs-driven rate fears: if lower cost pressure helps cool inflation and expected interest rates, financing could become less expensive.

The Bureau of Labor Statistics' preliminary November 5 release showed nonfarm business productivity rising 3.6% as output increased 3.7% and hours worked rose 0.1%. Hourly compensation increased 2.9%, while unit labor costs fell 0.7%. All those quarterly changes are seasonally adjusted annualized rates.

Unit labor costs track compensation relative to output. BLS divides hourly compensation by productivity: when each hour produces more, businesses can pay more per hour without incurring higher labor costs for each unit they produce.

That complicates a reading of the November 6 employment report as an automatic inflation warning. October payrolls increased 165,000, above the prior 12 months' average monthly gain of 48,000. Average hourly earnings for private nonfarm employees rose 0.4% over the month and 3.1% over a year.

The reports cover different periods and measures. Third-quarter productivity does not establish how productive workers were in October, and its annualized growth rate cannot simply be subtracted from monthly earnings growth. Higher hiring and pay alone leave the question of labor costs per unit of output unanswered.

Lower labor costs leave the Fed with an inflation problem

Nonfarm business unit labor costs remained 2.4% higher than a year earlier. The quarterly decline eases one source of cost pressure, while leaving both the durability of that improvement and its effect on consumer prices unsettled.

The Fed's latest decision illustrates the policy tension. On October 28, before either November labor release, the Federal Open Market Committee held its target range at 3.75% to 4.00% in a 10-2 vote. Lisa Cook and Beth Hammack preferred a quarter-point increase.

That statement described productivity growth as strong while calling inflation elevated. The two conditions already coexisted in the Fed's assessment, limiting the case for treating better productivity as an automatic signal of easier policy.

For Bitcoin, the financing channel depends on what happens to rate expectations. Expected short-term rates can influence longer-term rates, borrowing terms and the relative attractiveness of assets. A sustained decline in inflation pressure could ease a potential rates headwind for Bitcoin if it brings lower expected rates and funding costs.