U.S. productivity growth revised lower as first-quarter labor costs ease

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US productivity growth revised

Highlights

U.S. nonfarm productivity was revised down to 0.3% annualized growth in Q1, below the initial 0.8% estimate and economists' 0.5% forecast.
Unit labor costs rose at a revised 1.8% rate in Q1, down from 2.3% prior and lower than the 2.5% consensus estimate.
Despite Q1 softness, economists expect ongoing AI adoption to support output and keep labor cost growth contained over time.

First-quarter revisions show slower output growth

As reported by Reuters, the Labor Department's Bureau of Labor Statistics said on Thursday that nonfarm productivity, which measures hourly output per worker, increased at a downwardly revised 0.3% annualized rate in the first quarter. That is the slowest pace since the first quarter of 2025 and below the previously estimated 0.8% growth rate.

Economists polled by Reuters had expected productivity growth to be revised down to a 0.5% pace. From a year earlier, productivity grew 2.8%, slightly below the 2.9% estimate published last month, and it has risen at a 2.1% rate from the fourth quarter of 2019 through the first quarter of 2026.

The first-quarter softness follows last week's downgrade to U.S. gross domestic product growth to a 1.6% rate from the previously reported 2.0% pace. In the October-December quarter, productivity grew at an unrevised 1.6% rate.

Labor cost pressure moderates as AI outlook stays supportive

Unit labor costs, which measure the price of labor per unit of output, increased at a 1.8% rate last quarter, revised down from the 2.3% pace reported last month. Growth in fourth-quarter unit labor costs was also lowered, to a 2.1% rate from the previously reported 4.6% pace.

Economists had expected unit labor costs to rise at a 2.5% rate in the first quarter. From a year earlier, they grew 0.5%, while hourly compensation increased at a 2.1% rate in the quarter and advanced 3.3% from a year ago.

Despite the weaker first-quarter reading, economists say the broader productivity trend remains firm. They expect rising integration of artificial intelligence across business functions to lift output and help contain labor costs over time.

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