U.S. Unit Labor Costs Revised Down to 1.2% as Productivity Holds at 1.4%

U.S. nonfarm business unit labor costs increased at a 1.2% annualized rate in the second quarter of 2026, a slightly smaller rise than first reported, while labor productivity was left unchanged at 1.4%. The Bureau of Labor Statistics had initially estimated unit labor costs at 1.3%, so the revision modestly reduced the quarter’s measure of labor-cost pressure without changing the underlying productivity result.

The change came from hourly compensation, which was revised to a 2.6% annualized increase from the preliminary 2.7%. Output still rose 1.7% and hours worked increased 0.3%, leaving output per hour at the same 1.4% pace reported in August. Compared with the second quarter of 2025, productivity was 2.2% higher and unit labor costs were up 1.4%.

Unit labor costs compare compensation per hour with labor productivity, so stronger productivity can offset some of the effect of higher pay on the cost of producing each unit of output. In its September 3 revised Productivity and Costs release, the BLS said the lower second-quarter estimate reflected the 0.1-percentage-point downward revision to hourly compensation rather than a change in productivity, output or hours worked.

All of the quarter-to-quarter rates in the release are seasonally adjusted and annualized. That presentation makes the 1.2% unit labor cost figure comparable with other quarterly productivity readings, but it should not be read as a 1.2% increase accumulated during the three months themselves. On a four-quarter basis, hourly compensation increased 3.7%, productivity rose 2.2% and unit labor costs increased 1.4%.

The revision trims the labor-cost estimate, not the productivity reading

The distinction matters because the headline revision was narrow. The second-quarter productivity estimate did not move at the displayed precision, and neither did output or hours. Hourly compensation was the only nonfarm-business component among those measures to receive the small downward revision that pushed unit labor cost growth from 1.3% to 1.2%.

Real hourly compensation, which adjusts compensation for consumer prices, fell at a 3.3% annualized rate during the quarter and was down 0.1% from a year earlier. The labor share of nonfarm business output was 52.8%, the lowest level in the BLS series that begins in the first quarter of 1947. The preliminary report had put that share at 52.9%, so the revised data lowered the series low by another tenth of a percentage point.

First-quarter nonfarm business figures were much less affected by the latest update. Productivity remained at a 0.8% annualized increase and unit labor costs stayed at 1.3%, while output growth held at 1.5% and hours worked at 0.7%. That means the second quarter still showed a pickup in productivity from the start of the year even after the September revision.

Manufacturing revisions were considerably larger

The manufacturing data changed more substantially than the broad nonfarm business figures. Second-quarter manufacturing productivity was revised up to 2.4% from 1.9%, reflecting a stronger estimate for output and a smaller upward revision to hours. Output is now estimated to have risen 5.4%, up from 4.6% in the preliminary release, while hours worked increased 2.9% rather than 2.6%.

Those revisions pushed manufacturing unit labor costs into negative territory. The BLS now estimates that they declined 0.3% at an annualized rate, compared with an earlier estimate of no change. It was the first quarterly decline in manufacturing unit labor costs since the second quarter of 2021, although the measure was still 3.4% higher than a year earlier.

Durable manufacturing productivity increased 3.6% in the quarter after an upward revision from 2.7%, while durable unit labor costs fell 2.2%. Nondurable manufacturing productivity rose 2.1%, and its unit labor costs increased 0.8%. The revised 5.4% increase in total manufacturing output was the largest since the second quarter of 2021, when output rose 6.7%.

Longer-run productivity growth remains near its postwar pace

Beyond the quarterly revisions, the BLS data show nonfarm business productivity growing at a 2.1% annualized rate since the current business cycle began in the fourth quarter of 2019. Output has grown at a 2.5% annualized pace over that span and hours worked at 0.4%. The resulting productivity rate is above the 1.5% pace recorded during the previous business cycle from late 2007 through late 2019 and matches the 2.1% long-run rate measured since 1947.

The release also included preliminary second-quarter figures for nonfinancial corporations. Productivity in that sector increased at a 2.2% annualized rate as output rose 3.9% and hours worked increased 1.7%. Unit profits jumped at a 43.0% annualized rate, the fastest since the second quarter of 2021, and were 17.8% higher than a year earlier, the strongest four-quarter gain since the fourth quarter of 2021.

Productivity and unit labor cost data are watched because they help show how compensation and efficiency are moving relative to one another. The BLS notes that unit labor costs can be used as an indicator of inflationary pressure on producers, but the quarterly figures are volatile and are frequently revised as newer source data arrive from the BLS, Bureau of Economic Analysis and Federal Reserve. The next preliminary Productivity and Costs report, covering the third quarter of 2026, is scheduled for November 5 at 8:30 a.m. ET.