U.S. Productivity Rises 0.8% in Q1 2026 as Unit Labor Costs Climb 2.3%

Nonfarm business sector labor productivity increased 0.8 percent in the first quarter of 2026, the U.S. Bureau of Labor Statistics reported, as output increased 1.5 percent and hours worked increased 0.7 percent. Quarterly figures in this release are expressed as seasonally adjusted annual rates. This is the preliminary estimate for the quarter. Measured from the same quarter a year earlier, nonfarm business sector labor productivity increased 2.9 percent, a four-quarter rate that reads as the steadier signal underneath a noisy quarterly print.

Costs and the Inflation Read

Unit labor costs in the nonfarm business sector increased 2.3 percent in the first quarter of 2026, reflecting a 3.1-percent increase in hourly compensation and the 0.8-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 unit labor costs, and increases in productivity tend to reduce them. Because the release supplies all three figures, the mechanism is legible on its face — pay rose faster than output per hour, and the difference surfaced as a higher cost per unit produced.

The quarterly figure decelerated from the fourth quarter of 2025, when unit labor costs increased 4.6 percent. Over the last four quarters, unit labor costs increased 1.2 percent, a considerably calmer pace than any single quarterly annualized print suggests and one that does not carry a cost-push signature.

Real hourly compensation, which takes consumer prices into account, decreased 0.5 percent in the first quarter of 2026 and increased 1.4 percent over the last four quarters. The labor share, the percentage of output that accrues to workers in the form of compensation, was 54.1 percent in the first quarter of 2026.

Output and Hours

Productivity is a ratio, so the question worth asking is which side of it did the work. In the first quarter both sides rose: output increased 1.5 percent and hours worked increased 0.7 percent. Output outran hours, and productivity rose as a result. That is the more constructive of the two routes to a higher ratio — the alternative, productivity rising because hours contract faster than output, describes an economy shedding work rather than one producing more per hour.

The quarterly gain nonetheless sits below the pace of the preceding three quarters. Nonfarm business sector productivity increased 1.6 percent in the fourth quarter of 2025, 5.2 percent in the third quarter of 2025, and 4.2 percent in the second quarter of 2025, against a decline of 0.9 percent in the first quarter of 2025.

Manufacturing

Manufacturing sector labor productivity increased 3.6 percent in the first quarter of 2026, as output increased 3.3 percent and hours worked decreased 0.4 percent. Hours fell while output rose, so the manufacturing gain came from both directions at once. The detail beneath the total:

• Durable manufacturing: productivity increased 5.3 percent, reflecting a 5.4-percent increase in output and a 0.1-percent increase in hours worked
• Nondurable manufacturing: productivity increased 2.0 percent, as output increased 0.9 percent and hours worked decreased 1.0 percent
• Total manufacturing, four-quarter basis: productivity increased 1.7 percent

Manufacturing unit labor costs increased 2.4 percent in the first quarter of 2026, reflecting a 6.1-percent increase in hourly compensation and the 3.6-percent increase in productivity. Manufacturing unit labor costs increased 3.7 percent from the same quarter a year ago — a firmer cost trajectory than the nonfarm business sector's 1.2-percent four-quarter rate, and the one to watch if goods prices begin to firm.

Revisions

This release also restated the fourth quarter of 2025. Nonfarm business sector productivity increased 1.6 percent in that quarter rather than the previous estimate of 1.8 percent, reflecting a 0.2-percentage point downward revision to output; hours worked were not revised. Unit labor costs for the same quarter were revised up 0.2 percentage point, to an increase of 4.6 percent.

The restatement reaches considerably further back than a single quarter. Hours and related measures for all sectors were revised to incorporate updated ratios of hours worked to hours paid by detailed industry, with indexes subject to revision back to 2017. Measures of real hourly compensation for all sectors were subject to revision from 2021 onward, following incorporation of the revised Consumer Price Index Retroactive Series. Fourth-quarter and annual 2025 data absorbed regular updates of Commerce Department source data on output and compensation, and manufacturing sector output for the fourth quarter of 2025 reflects revisions published by the Board of Governors of the Federal Reserve System. A benchmark restatement of this kind repositions several years of the series simultaneously, which matters for anyone reading the level of the index rather than the latest quarterly rate.

Trend and Implications

Across the current business cycle, which BLS dates from the fourth quarter of 2019, nonfarm business sector labor productivity has grown at an annualized rate of 2.1 percent, reflecting a 2.5-percent rate of growth in output and a 0.4-percent rate of growth in hours worked. The comparable figure for the previous business cycle, from the fourth quarter of 2007 through the fourth quarter of 2019, is 1.5 percent.

Manufacturing has not shared in that improvement. Manufacturing sector labor productivity has grown at an annualized rate of 0.5 percent during the current business cycle, as output has increased 0.1 percent and hours worked have declined 0.4 percent. The first-quarter manufacturing gain of 3.6 percent is a single quarter against a cycle-length rate close to flat, and one quarter does not reset that.

For the inflation question, the four-quarter figures carry the argument. Unit labor costs increased 1.2 percent over the last four quarters while productivity increased 2.9 percent — compensation growth that productivity is currently absorbing rather than passing through to prices. Pay can rise as fast as productivity without raising unit labor costs, and no faster; at a 2.9-percent four-quarter productivity rate, there is room. The quarterly annualized unit labor cost increase of 2.3 percent is the noisier of the two readings and does not establish a trend by itself.

The revised Productivity and Costs news release for the first quarter of 2026 is scheduled for Thursday, June 4, 2026. The figure to watch is the nonfarm business sector productivity rate itself. Revisions to this series are routinely large enough to reverse the direction of a quarterly print, and the fourth quarter of 2025 was just marked down from 1.8 percent to 1.6 percent on an output revision alone, with hours untouched. If the 0.8-percent preliminary rate holds or firms, the four-quarter trend stays intact and the unit labor cost read stays benign. If it is revised toward zero, the 2.3-percent quarterly unit labor cost increase becomes considerably harder to dismiss as noise.