US nonfarm business labor productivity rose at a 3.6% annualized rate in the third quarter of 2026, the Bureau of Labor Statistics reported Nov. 5.
Output climbed 3.7% while hours worked rose just 0.1%, meaning companies squeezed more out of roughly the same workforce.
Unit labor costs, what a business pays in wages to make one unit of output, fell 0.7%. That is the first decline since the second quarter of 2025.
Hourly compensation rose 2.9%, and after inflation, real hourly compensation gained 1.1%.
The wider business sector did better still: productivity up 4.1%, unit labor costs down 0.9%.
The labor share of output, the slice of production that goes to workers as pay, slipped to 53.0%. That's the lowest level in a series that starts in 1947.
Capital spending is showing up in output per hour
Companies have poured money into artificial intelligence, software, and equipment, betting they can produce more without hiring more.
The numbers now back some of that. Productivity has grown at a 2.2% annualized pace during the current business cycle, which began in the fourth quarter of 2019, against 1.5% in the previous business cycle running from 2007 to 2019. The AI productivity trade has its own debate.
Second-quarter productivity was revised up to 2.1% from the previously reported 1.4%, a 0.7 percentage point bump driven by stronger output.
Productivity Growth Jumped Back to 3.6% in the Third Quarter
US nonfarm business labor productivity, quarterly % change at annual rate, Q4 2024 to Q3 2026. Source: Bureau of Labor Statistics
Bar chart. Percent Change. 2024 Q4: Productivity Growth (%) 2.10%. 2025 Q1: Productivity Growth (%) -0.10%. 2025 Q2: Productivity Growth (%) 4.20%. 2025 Q3: Productivity Growth (%) 4.50%. 2025 Q4: Productivity Growth (%) 1.20%. 2026 Q1: Productivity Growth (%) 1.40%. 2026 Q2: Productivity Growth (%) 2.10%. 2026 Q3: Productivity Growth (%) 3.60%.
Factories tell a messier story. Total manufacturing productivity edged up only 0.3%, as durable goods producers gained 2.2% and nondurable makers fell 1.7%.
Manufacturing unit labor costs rose 2.7% in the quarter and sat 4.0% above year-ago levels, the opposite of the broader economy's trend.
What it means for the Fed and for margins
Rising output per hour lets firms absorb pay increases without raising prices, which protects profit margins and takes pressure off inflation.
Fed officials described productivity growth as strong after their October meeting, even with inflation still elevated.
Chair Kevin Warsh has said technological advances should ultimately ease price pressures, while cautioning that any AI-driven payoff will emerge gradually.
Separate data showed initial jobless claims matching the lowest level since 1969, and Challenger, Gray & Christmas counted the fewest October layoff announcements in three years.
The central bank left its benchmark overnight rate in the 3.75% to 4.00% range at that meeting while flagging that inflation remains elevated.
The employment cost report, the broadest measure of labor costs, showed a moderate increase last week and has its own read.
Benign wage costs give policymakers room to treat price pressures, not paychecks, as the live problem.
Over the past four quarters, the picture is less rosy. Productivity grew 2.1% year over year, while unit labor costs still ran 2.4% higher than a year earlier.
Productivity also swings hard from quarter to quarter, so one strong print doesn't settle the argument.
For investors, the read-through sits in margins. Companies producing more per hour with wage growth cooling keep more of each dollar of revenue, and the next revision lands Dec. 8.
