The US Bureau of Labor Statistics reports that the US labor productivity rose sharply in the third quarter of 2025, driven by strong output growth and modest increases in hours worked, while unit labor costs declined as productivity gains outpaced compensation growth. Manufacturing and nonfinancial corporate sectors also saw productivity improvements, and recent data revisions lifted the overall productivity growth rate for the current business cycle above that of the previous cycle. The BLS writes:
Nonfarm business sector labor productivity increased 4.9 percent in the third quarter of 2025, the U.S. Bureau of Labor Statistics reported today, as output increased 5.4 percent and hours worked increased 0.5 percent. (All quarterly percent changes in this release are seasonally adjusted annualized rates.) From the same quarter a year ago, nonfarm business sector labor productivity increased 1.9 percent in the third quarter of 2025.
Unit labor costs in the nonfarm business sector decreased 1.9 percent in the third quarter of 2025, reflecting a 2.9-percent increase in hourly compensation and a 4.9-percent increase in productivity. Unit labor costs increased 1.2 percent over the last four quarters.
BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs, while increases in productivity tend to reduce them. Real hourly compensation, which takes into account consumer prices, decreased 0.2 percent in the third quarter of 2025 and increased 0.3 percent over the last four quarters.
Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all workers, including employees, proprietors, and unpaid family workers. During the current business cycle, starting in the fourth quarter of 2019, labor productivity has grown at an annualized rate of 2.0 percent, reflecting a 2.6-percent rate of growth in output and a 0.6-percent rate of growth in hours worked.
The 2.0-percent annualized rate of nonfarm business productivity growth in the current business cycle is higher than the 1.5-percent rate of the previous business cycle (fourth quarter of 2007 through fourth quarter of 2019) and just below the long-term rate of 2.1 percent since the first quarter of 1947.
Manufacturing sector labor productivity increased 3.3 percent in the third quarter of 2025, as output increased 2.6 percent and hours worked decreased 0.7 percent. In the durable manufacturing sector, productivity increased 4.7 percent, reflecting a 3.0-percent increase in output and a 1.7-percent decrease in hours worked. Nondurable manufacturing sector productivity increased 1.2 percent, as output increased 2.1 percent and hours worked increased 1.0 percent.
Total manufacturing sector productivity increased 2.3 percent from the same quarter a year ago—its largest four-quarter gain since the second quarter of 2021, when it increased 4.9 percent.
Unit labor costs in the total manufacturing sector increased 1.5 percent in the third quarter of 2025, reflecting a 4.8-percent increase in hourly compensation and a 3.3-percent increase in productivity. Unit labor costs increased 0.6 percent in the durable goods sector and 2.8 percent in nondurable goods industries. Manufacturing unit labor costs increased 1.3 percent from the same quarter a year ago.
Manufacturing sector labor productivity has grown at an annualized rate of 0.4 percent during the current business cycle, as output increased 0.1 percent and hours worked declined 0.3 percent. This rate exceeds the 0.1-percent pace of the previous business cycle but remains below the long-term rate of 2.1 percent since the first quarter of 1987.
The concepts, sources, and methods used for manufacturing output differ from those used for business and nonfarm business output; these measures are not directly comparable. See the Technical Notes for details.
Nonfinancial corporate sector labor productivity increased 3.0 percent in the third quarter of 2025, as output increased 3.7 percent and hours worked increased 0.7 percent. Productivity increased 2.8 percent over the last four quarters.
Unit labor costs in the nonfinancial corporate sector increased 0.6 percent in the third quarter of 2025, reflecting a 3.6-percent increase in hourly compensation and a 3.0-percent increase in productivity. Unit labor costs increased 1.3 percent over the last four quarters. Unit profits increased 6.6 percent in the third quarter and declined 0.3 percent over the last four quarters.
Revised Measures
Measures of output and compensation incorporate BEA’s 2025 Annual Update of the NIPA, resulting in revisions back to 2020 for output-related measures and back to 2018 or 2020 for compensation measures, depending on sector. Updated source data released December 23, 2025, affected second-quarter 2025 estimates.
Manufacturing output measures reflect revised benchmark data from 1987 to 2022, along with updated industrial production indexes published by the Federal Reserve.
Quarterly productivity growth revisions during the current business cycle raised the overall annualized growth rate by 0.1 percentage point, from 1.8 percent to 1.9 percent, and revised the cycle rate to 2.0 percent.
Annual Averages
Annual average productivity in the nonfarm business sector increased 2.8 percent in 2024, while unit labor costs increased 2.4 percent, unchanged from prior estimates. Manufacturing productivity was revised downward in 2024, raising unit labor costs to 4.7 percent. Nonfinancial corporate sector productivity was revised down to 2.6 percent, while unit labor costs rose 2.6 percent.
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