Nonfarm Productivity Up 1.4% in Q2 2026, Unit Labor Costs Up 1.3%

U.S. labor productivity in the nonfarm business sector increased 1.4 percent in the second quarter of 2026, according to preliminary estimates from the Bureau of Labor Statistics, as output increased 1.7 percent and hours worked increased 0.3 percent. All quarterly percent changes in this release are seasonally adjusted annualized rates. Measured from the same quarter a year ago, nonfarm business sector labor productivity increased 2.2 percent. The second-quarter rate stands 0.6 percentage point above the first-quarter rate of 0.8 percent, itself revised up in this release.

This is a preliminary estimate. It carries a full quarter of revision risk, and the revisions published today to the first quarter show why that matters.

Costs: Compensation Growth Ran Ahead of Productivity

Unit labor costs in the nonfarm business sector increased 1.3 percent in the second quarter of 2026, reflecting a 2.7-percent increase in hourly compensation and a 1.4-percent increase in productivity. BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity: increases in hourly compensation tend to raise them, and increases in productivity tend to reduce them. Over the last four quarters, unit labor costs increased 1.4 percent.

At 1.3 percent on the quarter and 1.4 percent over four quarters, unit labor cost growth in the nonfarm business sector is running at a pace consistent with price stability rather than cost-push pressure from labor. That is the central inflation read in this report, and it is a benign one at the aggregate level.

Real hourly compensation, which takes into account consumer prices, decreased 3.1 percent in the second quarter of 2026 and decreased 0.1 percent over the last four quarters. Nominal hourly compensation increased 2.7 percent over the same quarter, so the decline in the real measure reflects the consumer-price adjustment rather than a retreat in nominal pay. The labor share, which is the percentage of output that accrues to workers in the form of compensation, was 52.9 percent in the second quarter of 2026.

Output and Hours: Growth Did the Work

Productivity rose in the second quarter because output grew faster than hours worked. Output increased 1.7 percent while hours worked increased 0.3 percent. Over the last four quarters, output increased 2.5 percent and hours worked increased 0.2 percent.

The composition matters more than the headline. Productivity gains generated by expanding output describe a different economy from gains generated by contracting hours — the first reflects growing activity, the second a shrinking labor input. The second quarter belongs to the first category: both the numerator and the denominator increased, with output increasing by the wider margin.

Manufacturing: A Sharper Quarter, a Weaker Four Quarters

Manufacturing sector labor productivity increased 1.9 percent in the second quarter of 2026, as output increased 4.6 percent and hours worked increased 2.6 percent. The components:

• Durable manufacturing: productivity increased 2.7 percent, reflecting a 7.3-percent increase in output and a 4.5-percent increase in hours worked.
• Nondurable manufacturing: productivity increased 2.0 percent, as output increased 1.5 percent and hours worked decreased 0.5 percent.
• Total manufacturing, four-quarter basis: productivity increased 0.9 percent.
• Durable goods, four-quarter basis: productivity increased 2.2 percent, as output grew 3.1 percent and hours worked rose 0.9 percent.
• Nondurable goods, four-quarter basis: productivity declined 0.3 percent, as output declined 0.6 percent and hours worked declined 0.4 percent.

Unit labor costs in the total manufacturing sector were unchanged in the second quarter of 2026, as a 1.9-percent increase in hourly compensation was offset by a 1.9-percent increase in productivity. Manufacturing unit labor costs increased 3.5 percent from the same quarter a year ago — a materially firmer cost trajectory than the 1.4-percent four-quarter rate in the nonfarm business sector.

BLS cautions that the concepts, sources, and methods used for the manufacturing output series differ from those used in the business and nonfarm business output series, and that these output measures are not directly comparable.

Revisions to the First Quarter Were Significant

This release incorporates regular updates of source data from BLS and the Bureau of Economic Analysis for all sectors, and from the Board of Governors of the Federal Reserve System for the manufacturing sectors. The first-quarter revisions were large by the standard that treats 0.5 percentage point as significant:

• Nonfarm business productivity: revised up 0.5 percentage point to an increase of 0.8 percent; output was revised up 0.5 percentage point to an increase of 1.5 percent, and hours worked were not revised.
• Nonfarm business unit labor costs: revised down 0.5 percentage point to a rate of 1.3 percent; hourly compensation was not revised.
• Manufacturing productivity: revised down 1.3 percentage point to an increase of 1.9 percent, reflecting a 1.4-percentage point downward revision to output; hours worked were not revised.
• Durable manufacturing productivity: revised down 0.9 percentage point to an increase of 4.6 percent.
• Nondurable manufacturing productivity: revised down 1.6 percentage point to a decrease of 0.7 percent.
• Total manufacturing unit labor costs: revised up 1.3 percentage point to an increase of 3.5 percent.
• Nonfinancial corporate productivity: revised up 0.7 percentage point to an increase of 1.4 percent, with unit labor costs revised down 0.7 percentage point to an increase of 0.7 percent.

The direction of these revisions is instructive. The nonfarm business sector was revised toward stronger productivity and correspondingly softer unit labor costs, while manufacturing was revised the other way on both counts.

Trend and Implications

During the current business cycle, which starts in the fourth quarter of 2019, nonfarm business labor productivity has grown at an annualized rate of 2.1 percent through the second quarter of 2026, reflecting a 2.5-percent rate of growth in output and a 0.4-percent rate of growth in hours worked. The previous business cycle, from the fourth quarter of 2007 through the fourth quarter of 2019, ran at a 1.5-percent annualized rate, and the long-term rate since the first quarter of 1947 is 2.1 percent.

Manufacturing has not participated. Manufacturing sector labor productivity has grown at an annualized rate of 0.5 percent during the current business cycle, from the fourth quarter of 2019 through the second quarter of 2026, as output grew at a 0.2-percent rate and hours worked declined at a 0.3-percent rate. The previous business cycle ran at a 0.1-percent rate, against a long-term rate of 2.1 percent since the first quarter of 1987.

Productivity is the quantity that decides whether pay growth is inflationary: compensation can rise as fast as productivity without raising unit labor costs, and no faster. On that test the second quarter passes at the aggregate level, with productivity increasing 1.4 percent and unit labor costs increasing 1.3 percent. Manufacturing does not pass it on a four-quarter basis, where productivity increased 0.9 percent while unit labor costs increased 3.5 percent.

The revised Productivity and Costs report for the second quarter of 2026 is scheduled for release on Thursday, September 3, 2026. The figure that will confirm or contradict this read is the revision to the 1.4-percent nonfarm business productivity rate. Because unit labor costs are the ratio of hourly compensation to productivity, a downward revision to productivity with hourly compensation left unrevised would raise the unit labor cost rate above its current 1.3 percent — and the revisions published today, which reached 1.3 percentage point for manufacturing, show that a revision of that size is unremarkable in this series.