American workers produced more per hour worked in the third quarter than at any point in the past year, according to Labor Department figures released Thursday. Nonfarm business productivity rose at a 3.6 percent annual rate from July through September, blowing past economists’ forecast of 2.8 percent and marking the third straight quarter of acceleration.
The department also revised second-quarter growth sharply upward, from 1.4 percent to 2.1 percent, suggesting the economy has been running hotter on efficiency than previously understood.
Business output climbed at a 3.7 percent annual rate while hours worked barely moved, up just 0.1 percent. That gap between output and hours is the entire story: companies are producing more without hiring more, a trend consistent with the broader 3.4 percent expansion in GDP this quarter, driven by business investment and consumer spending.
This is not a one-quarter blip. Output per hour has climbed every quarter for a year straight — 1.2 percent in the final quarter of 2025, then 1.4 percent, 2.1 percent, and now 3.6 percent. Revisions released Thursday show the trend runs even deeper than reported: 2024 productivity growth was bumped up to 3.2 percent from 3.0 percent, and 2025 growth to 2.3 percent from 2.1 percent.
Businesses have been pouring capital into artificial intelligence, software, and equipment, betting they can squeeze more output from the same workforce rather than add headcount. When that bet pays off, it typically means room for higher wages without businesses having to raise prices to cover labor costs.
Pay Rose — But So Did the Cost Squeeze on Labor
Hourly compensation increased at a 2.9 percent annual rate in the third quarter, or 1.1 percent after accounting for inflation. But because productivity outran pay, unit labor costs actually fell, dropping at a 0.7 percent rate — the opposite of the 0.3 percent increase economists had expected. The government also revised unit labor cost growth down for both prior years, to 2.0 percent in 2024 and 1.9 percent in 2025.
Zoom out and the trend holds: productivity has grown at roughly a 2.8 percent annual rate over the past six months, putting it on par with the 2001-07 expansion. Since the end of 2019, productivity has grown at a 2.2 percent annual clip, well above the 1.5 percent pace of the prior business cycle.
Manufacturing told a split story. Durable-goods factories saw output jump at a 3.8 percent annual rate even as hours rose 1.6 percent, pushing productivity up 2.2 percent. Nondurable-goods factories went the other way, with productivity falling 1.7 percent, leaving overall manufacturing productivity up a modest 0.3 percent.
One figure in the report stands out and deserves scrutiny: workers’ share of nonfarm business output fell to 53.0 percent — the lowest level in records dating back to 1947. Output is surging. Hours worked are flat. Pay is up, but not as fast as output. The math leaves labor with a shrinking slice even as the economic pie grows.
