Key Highlights

  • Nonfarm business sector labor productivity rose 1.4% in the second quarter of 2026, more than double the 0.6% increase economists had expected, as output rose 1.7% and hours worked increased 0.3%.
  • Unit labor costs in the nonfarm business sector rose 1.3%, reflecting a 2.7% increase in hourly compensation partly offset by the productivity gain, while real hourly compensation fell 3.1% after accounting for consumer prices.
  • The labor share of output, the percentage of output paid to workers as compensation, fell to 52.9% in the second quarter, the lowest level since the series began in 1947.
  • Manufacturing sector productivity rose 1.9%, with unit labor costs unchanged as a 1.9% increase in hourly compensation was fully offset by the productivity gain.

Productivity Growth Outpaces Forecasts on Stronger Output

Nonfarm business sector labor productivity rose 1.4% in the second quarter of 2026, more than double the 0.6% increase economists had forecast, according to the Bureau of Labor Statistics, as output increased 1.7% and hours worked rose 0.3%. On a year-over-year basis, nonfarm business sector productivity rose 2.2% in the second quarter. During the current business cycle beginning in the fourth quarter of 2019, labor productivity has grown at an annualized rate of 2.1%, a pace higher than the 1.5% rate recorded during the previous business cycle from the fourth quarter of 2007 through the fourth quarter of 2019.

Unit Labor Costs Rise as Compensation Gains Outpace Inflation-Adjusted Pay

Unit labor costs in the nonfarm business sector rose 1.3% in the second quarter, reflecting a 2.7% increase in hourly compensation that was partly offset by the 1.4% productivity gain, and have increased 1.4% over the last four quarters. Real hourly compensation, which adjusts for consumer prices, fell 3.1% during the quarter and declined 0.1% over the last four quarters. The labor share of output, representing the percentage of output that accrues to workers as compensation, fell to 52.9% in the second quarter, the lowest level recorded since the series began in the first quarter of 1947.

Manufacturing Productivity Rises as Durable Goods Output Surges

Manufacturing sector labor productivity rose 1.9% in the second quarter, as output increased 4.6% and hours worked rose 2.6%. Durable manufacturing productivity increased 2.7%, driven by a 7.3% rise in output against a 4.5% increase in hours worked, while nondurable manufacturing productivity rose 2.0% as output increased 1.5% and hours worked fell 0.5%. Total manufacturing sector productivity rose 0.9% from the same quarter a year earlier. Unit labor costs in the total manufacturing sector were unchanged during the quarter, as a 1.9% increase in hourly compensation was fully offset by the matching productivity gain, though manufacturing unit labor costs rose 3.5% from the same quarter last year. First-quarter nonfarm business productivity was revised up 0.5 percentage point to 0.8%, translating to a 0.5 percentage point downward revision to first-quarter unit labor costs, to 1.3%.

Conclusion

The stronger-than-expected productivity growth in the second quarter, combined with unit labor cost increases that came in below forecasts, suggests underlying cost pressures within the labor market may be moderating even as hourly compensation continues to rise. The decline in the labor share of output to its lowest recorded level highlights a continued shift in how output gains are being distributed between labor and other forms of income. The revised Productivity and Costs release for the second quarter is scheduled for September 3, which may offer further clarity on these trends.