Quantum error correction is believed to be essential for scalable quantum computation, but its implementation is challenging due to its considerable space-time overhead. Motivated by recent experiments demonstrating efficient manipulation of logical qubits using transversal gates [Bluvstein et al., Nature (London) 626, 58 (2024)NATUAS0028-083610.1038/s41586-023-06927-3], we show that the performance of logical algorithms can be substantially improved by decoding the qubits jointly to account for error propagation during transversal entangling gates. We find that such correlated decoding improves the performance of both Clifford and non-Clifford transversal entangling gates, and explore two decoders offering different computational runtimes and accuracies. In particular, by leveraging the deterministic propagation of stabilizer measurement errors, we find that correlated decoding enables the number of noisy syndrome extraction rounds between gates to be reduced from O(d) to O(1) in transversal Clifford circuits, where d is the code distance. We verify numerically that this approach substantially reduces the space-time cost of deep logical Clifford circuits. These results demonstrate that correlated decoding provides a major advantage in early fault-tolerant computation, as realized in recent experiments, and further indicate it has considerable potential to reduce the space-time cost in large-scale logical algorithms.