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US: Productivity and Costs
| Consensus | Consensus Range | Actual | Previous | Revised | |
| Nonfarm Productivity - Annual Rate | 3.6% | 1.0% to 5.4% | 4.9% | 3.3% | 4.1% |
| Unit Labor Costs - Annual Rate | 0.8% | -1.4% to 2.0% | -1.9% | 1.0% | -2.9% |
Highlights
U.S. nonfarm productivity shows growth at a very strong 4.9 percent in the third quarter of 2025 on quarter at an annualized rate compared with a revised 4.1 percent in Q2 (was 3.3 percent). Expectations for Q3 called for a gain of 3.6 percent.
The latest figure reflects output up 5.4 percent with hours worked up only 0.5 percent. Productivity increased 1.9 percent on year compared to the third quarter of 2024.
Meanwhile, on the inflation front, unit labor costs actually dropped by a 1.9 percent annualized rate in the third quarter compared with a revised drop of 2.9 percent in Q2 (previously reported up 1.0 percent) and versus expectations for an increase of 0.8 percent. Unit labor costs are up 1.2 percent over the last four quarters.
These figures are suggest remarkable productivity gains and diminishing wage pressures, which should somewhat assuage worries about stagflation.
Market Consensus Before Announcement
Productivity growth rate seen rising to 3.6 percent and ULC at 0.8 percent in the first reading for Q3.
Definition
Productivity measures the growth of labor efficiency in producing the economy's goods and services. Unit labor costs reflect the labor costs of producing each unit of output. Both are followed as indicators of future inflationary trends.
Description
Productivity growth is critical because it allows for higher wages and faster economic growth without inflationary consequences. In periods of robust economic growth, productivity ensures that inflation will remain well behaved despite tight labor markets. Productivity growth is also a key factor in helping to increase the overall wealth of an economy since real wage gains can be made when workers are more productive per hour.
Productivity and labor cost trends have varied over the decades. In the late 1990s, some economists asserted that dramatic productivity advances (based on new technologies) were then allowing the economy to sustain a much faster pace of growth than previously thought possible. Initially, some Fed officials expressed skepticism but later decided that productivity gains had helped boost economic growth and potential GDP growth during the 1990s. That is, the economy could grow faster than previously believed without igniting inflation.
Determining the source of productivity gains has become trickier over the last decade as new technology continues to be incorporated into production - not just in the U.S. but overseas also. Similarly, retraining U.S. workers has been sporadic. Not just low skill jobs are outsourced but now many highly skilled jobs such as programming and accounting are as well. Nonetheless, highly skilled professional jobs have been increasingly difficult to fill during times of high demand. Despite the cross currents in labor market trends, long-term productivity gains are important for maintaining growth in labor income and keeping inflation low.
But in the short-term, output and hours worked can shift sharply just due to cyclical swings in the economy. During the onset of recession, output typically falls before hours worked. This can result in a temporary drop in productivity and a spike in unit labor costs. So, while long-term productivity determines the"speed limit" for long-term growth, one should not be misled by short-term cyclical gyrations in productivity numbers as reflecting the true, underlying trend.