U.S. labor productivity rose at the fastest pace in a year in the third quarter.
Productivity in the nonfarm business sector increased at a 3.6 percent annual rate from July through September, the Labor Department said Thursday, beating
economists' forecast of 2.8 percent. The government revised second-quarter growth up to 2.1 percent from 1.4 percent.
Business output rose at a 3.7 percent annual rate in the third quarter, while hours worked increased just 0.1 percent. The rise in output drove the productivity gain as the broader economy expanded at a 3.4 percent pace, supported by strong business investment and consumer spending.
The report adds to signs of a sustained productivity boom. Growth in output per hour has accelerated for three straight quarters, rising from a 1.2 percent annual rate in the final quarter of 2025 to 1.4 percent in the first quarter of this year, 2.1 percent in the second and 3.6 percent in the third.
Revisions released Thursday showed that the boom was stronger than previously estimated. Productivity grew 3.2 percent in 2024, up from an earlier estimate of 3.0 percent. Growth in 2025 was revised to 2.3 percent from 2.1 percent.
Businesses have poured money into artificial intelligence, software and equipment in hopes of increasing output without a comparable rise in labor hours. Faster productivity growth can support higher wages and help companies contain costs even as the economy expands.
Hourly compensation increased at a 2.9 percent annual rate in the third quarter and rose 1.1 percent after inflation. Because output per hour grew faster than compensation, labor costs per unit of output declined at a 0.7 percent rate. Economists had expected a 0.3 percent increase. The government also revised its estimates of unit labor cost growth lower for both 2024 and 2025, to 2.0 percent and 1.9 percent, respectively.
Productivity grew at about a 2.8 percent annual rate over the six months through September, roughly matching its pace during the 2001–07 expansion. Since the end of 2019, it has grown at a 2.2 percent annual rate, up from 1.5 percent during the preceding business cycle.
The gains were uneven in manufacturing. Durable-goods factories increased output at a 3.8 percent annual rate as hours worked rose 1.6 percent, lifting productivity 2.2 percent. Productivity fell 1.7 percent at nondurable-goods factories, leaving manufacturing productivity up 0.3 percent overall.
Workers' share of nonfarm business output fell to 53.0 percent, the lowest in records dating to 1947.
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