Productivity Rises 1.4 Percent in Q2 2026; Real Hourly Pay Falls 3.3 Percent

Nonfarm business sector labor productivity increased 1.4 percent at an annual rate in the second quarter of 2026, unchanged from the preliminary estimate, as output increased 1.7 percent and hours worked increased 0.3 percent. Unit labor costs increased 1.2 percent, revised down from the 1.3 percent first reported. Measured from the same quarter a year ago, productivity increased 2.2 percent.

For inflation, that is a benign combination. For workers, it is not. Real hourly compensation decreased 3.3 percent at an annual rate over the same quarter, and the labor share — the percentage of output accruing to workers as compensation — stood at 52.8 percent, which the Bureau of Labor Statistics identifies as the lowest level in a series that begins in the first quarter of 1947.

The Headline: 1.4 Percent, and Barely Revised

This is the revised second-quarter estimate, and for the nonfarm business sector it changed almost nothing. Labor productivity, output, and hours worked were not revised at the displayed precision for either the annualized one-quarter or the four-quarter growth rate. The only movement was in costs, where unit labor costs came in at 1.2 percent rather than 1.3 percent, reflecting a 0.1-percentage point downward revision to hourly compensation.

The quarterly figure represents an acceleration: productivity growth was 0.6 percentage point faster than in the first quarter. All quarterly percent changes in this release are seasonally adjusted annualized rates, and they should not be read against the four-quarter change of 2.2 percent as though the two measure the same thing — the first describes one quarter's pace projected forward, the second the actual change over a year.

Costs: Benign for Inflation, Less So for Workers

Unit labor costs are the ratio of hourly compensation to labor productivity, so pay can rise as fast as productivity without raising them, and no faster. This quarter the release supplies all three figures, and they sit in exactly that relationship: hourly compensation increased 2.6 percent while productivity increased 1.4 percent, leaving unit labor costs up 1.2 percent. Over the last four quarters unit labor costs increased 1.4 percent.

That is not a cost-push signal. Unit labor cost growth running near 1 percent is comfortably beneath the pace that would make wage growth an inflation problem, and productivity is the reason — without it, a 2.6 percent compensation increase would have passed through to costs nearly in full.

The same arithmetic reads differently from the worker's side. Nominal hourly compensation rose 2.6 percent; real hourly compensation, which accounts for consumer prices, fell 3.3 percent in the quarter and 0.1 percent over the last four quarters. The gap between those two figures is the whole story of who captured this quarter's output growth, and the labor share at 52.8 percent answers it.

Output and Hours

Productivity is a ratio, and it matters a great deal which side of it moved. Here output increased 1.7 percent while hours worked increased 0.3 percent — so the gain came from producing more, not from producing the same with fewer people. That is the healthier of the two ways this number goes up. A productivity increase driven by contracting hours records the same figure while describing an economy shedding labor.

The longer arc supports the same reading. Since the fourth quarter of 2019, nonfarm business productivity has grown at an annualized rate of 2.1 percent, reflecting a 2.5-percent rate of output growth against a 0.4-percent rate in hours. That is above the 1.5-percent rate of the previous business cycle, which ran from the fourth quarter of 2007 through the fourth quarter of 2019, and matches the long-term rate of 2.1 percent since the first quarter of 1947.

Manufacturing Revised Sharply Higher

Where the revision did bite was manufacturing, and it bit hard. Second-quarter manufacturing sector labor productivity was revised up to an increase of 2.4 percent from a previously reported 1.9 percent, reflecting a 0.8-percentage point upward revision to output and a 0.3-percentage point upward revision to hours worked.

• Total manufacturing sector: productivity increased 2.4 percent, as output increased 5.4 percent and hours worked increased 2.9 percent
• Durable manufacturing sector: productivity increased 3.6 percent — revised up 0.9 percentage point — as output increased 8.9 percent and hours worked increased 5.1 percent
• Nondurable manufacturing sector: productivity increased 2.1 percent, revised up 0.1 percentage point, as output increased 1.4 percent and hours worked decreased 0.6 percent
• Total manufacturing unit labor costs: decreased 0.3 percent, a 0.3-percentage point downward revision, on a 2.1-percent increase in hourly compensation

BLS notes that the manufacturing output increase is the largest since the second quarter of 2021, when the measure increased 6.7 percent, and that the decline in manufacturing unit labor costs is the first since that same quarter, when the measure also declined 0.3 percent. Over the last four quarters, total manufacturing sector productivity increased 1.1 percent and unit labor costs increased 3.4 percent — so the quarterly decline sits inside an annual increase, not against it.

One caution the release itself raises: the concepts, sources, and methods behind the manufacturing output series differ from those used for the business and nonfarm business series, and the two output measures are not directly comparable. The first-quarter revisions ran the same direction, with manufacturing productivity revised up 0.3 percentage point to an increase of 2.2 percent and its unit labor costs revised down 0.2 percentage point to an increase of 3.3 percent, while nonfarm business productivity and unit labor costs were not revised at all.

Trend and Implications

Two things are true at once in this release. Productivity growth is doing the work asked of it — holding unit labor costs near 1 percent while compensation grows at 2.6 percent, and running at a cycle rate that matches the post-1947 long-term average. And the returns to that growth are not reaching workers this quarter, with real hourly compensation falling and the labor share at a series low.

Preliminary second-quarter measures for the nonfinancial corporate sector, announced in the same release, point the same direction from the other end: productivity increased 2.2 percent and 3.1 percent over the last four quarters, while unit profits increased at an annualized rate of 43.0 percent, which BLS identifies as the highest rate since the second quarter of 2021. Over the last four quarters unit profits increased 17.8 percent, which BLS puts at the highest rate since the fourth quarter of 2021.

The preliminary Productivity and Costs release for the third quarter of 2026 is scheduled for Thursday, November 5, 2026, at 8:30 a.m. ET. Two figures will settle the read. Whether unit labor cost growth stays near 1 percent determines whether the benign inflation signal survives a quarter in which compensation growth does not slow; and whether real hourly compensation stops falling determines whether this quarter's split between output growth and worker income was a single-quarter artifact of consumer prices or the shape of the cycle.