The U.S. economy recorded a stronger-than-anticipated increase in worker output in the second quarter, the Labor Department's Bureau of Labor Statistics reported on Thursday. Nonfarm productivity - defined as output per hour worked - rose at a 1.4% annualized rate in the April-June period, exceeding economist expectations.
This pace follows an upward revision to the prior quarter, when productivity growth for January-March was adjusted to a 0.8% annualized increase. On a year-over-year basis, productivity expanded 2.2% in the second quarter. Looking at a longer window, productivity has advanced at a 2.1% annualized rate from the fourth quarter of 2019 through the second quarter of 2026.
Alongside productivity, measures of labor cost growth showed more modest movement. Unit labor costs - which capture the price of labor required to produce a single unit of output - increased 1.3% in Q2. That matched a downward revision to a 1.3% pace in the prior quarter. Economists had been forecasting a larger 2.1% rise in unit labor costs, after an earlier report showed 1.8% growth in the January-March period.
On an annual comparison, labor costs rose 1.4% relative to the same quarter last year. Compensation per hour moved higher as well: hourly compensation climbed 2.7% in Q2 and was up 3.7% versus the year-ago quarter.
Market watchers and policymakers have highlighted business investment in artificial intelligence as a potential engine for further productivity gains. Such investments are expected to lift output per worker and, in doing so, could ease pressure on inflation by lowering labor costs per unit of production.
These readings present a picture of rising output efficiency coupled with moderate upward pressure on labor expenses. The data will likely factor into assessments of inflation dynamics and corporate cost trends as economic participants weigh the role of technology-driven productivity improvements in the months ahead.
Summary - U.S. nonfarm productivity grew at a 1.4% annualized rate in Q2, outpacing expectations and following a 0.8% upwardly revised gain in Q1. Unit labor costs rose 1.3% in Q2, matching the revised Q1 pace and falling short of economist forecasts. Hourly compensation increased 2.7% in the quarter and 3.7% year-over-year. Analysts and policymakers point to AI investment as a likely contributor to future productivity growth.