US Productivity Rises 3.6% in Q3 as Unit Labour Costs Fall 0.7%
US nonfarm business productivity rose at a 3.6% annual rate in the third quarter while unit labour costs fell 0.7%, the Bureau of Labor Statistics said on Thursday.
For American employers, the quarter brought more output with almost no extra hours, and the labour cost of each unit produced went down. Workers’ share of that output stood at 53.0%, the lowest level in a series that begins in 1947, the bureau said. In The Edge’s reading, labour’s share fell as unit labour costs grew more slowly than output prices and unit nonlabour payments: over the year, unit labour costs rose 2.4%, against 4.1% for prices and 6.0% for unit nonlabour payments.
The figures are preliminary and seasonally adjusted, and every quarterly change is an annual rate. Based on past revisions, the bureau says the third estimate of quarterly productivity growth has differed from the first by between minus 1.1 and plus 1.4 percentage points about 80% of the time. The figures include the annual update of the national accounts published on 30 September, which revised productivity and unit labour costs back to 2021.
Output rises with almost no extra hours
Output in the nonfarm business sector grew at a 3.7% annual rate, while hours worked rose 0.1%. Nearly all of the quarter’s growth came from output per hour rather than from more work.
Productivity has picked up in each of the past three quarters on the revised data. It rose 1.2% in the fourth quarter of 2025 and 1.4% in the first quarter of 2026. It then reached 2.1% in the second quarter and 3.6% in the third.
From a year earlier, productivity rose 2.1%. Output grew 2.3% over the same period, against 0.2% for hours.
Since the fourth quarter of 2019, the start of the current business cycle, productivity has grown at a 2.2% annual rate. That matches the long-term rate since 1947 and is faster than the 1.5% of the 2007 to 2019 cycle. Over the current cycle, output has grown at 2.7% a year and hours at 0.4%.
The third-quarter productivity figures draw on the output and compensation data released with the advance GDP estimate of 29 October. That estimate, set out here on 29 October, put real GDP growth at a 3.4% annual rate, up from 2.2% in the second quarter.
Nonfarm business sector, third quarter 2026 (change in %)
| Measure | Q2 | Q3 | Year |
|---|---|---|---|
| Productivity | 2.1 | 3.6 | 2.1 |
| Output | 2.4 | 3.7 | 2.3 |
| Hours worked | 0.3 | 0.1 | 0.2 |
| Hourly compensation | 4.0 | 2.9 | 4.5 |
| Real hourly compensation | -1.9 | 1.1 | 1.0 |
| Unit labour costs | 1.9 | -0.7 | 2.4 |
Q2 and Q3 are changes from the previous quarter at seasonally adjusted annual rates; Q2 is revised and Q3 preliminary. Year is the change from the third quarter of 2025.
Unit labour costs fall for the first time since the second quarter of 2025
Hourly compensation rose at a 2.9% annual rate, slower than the 3.6% gain in productivity. That pushed unit labour costs down 0.7%. The bureau calculates unit labour costs as the ratio of hourly compensation to productivity, so faster productivity growth pushes them down.
It is the first quarterly decline since the second quarter of 2025, when unit labour costs fell 1.1% on the revised data. In the four quarters in between, they rose at rates of 0.1% to 4.7%.
Pay growth itself has cooled. Hourly compensation growth has slowed in each of the past three quarters, from 6.0% in the fourth quarter of 2025 to 2.9% in the third quarter of 2026.
Real hourly compensation, which takes consumer prices into account, rose 1.1% after a 1.9% decline in the second quarter. Over the year, real hourly compensation rose 1.0% and nominal hourly compensation 4.5%.
The bureau’s employment cost index, set out on 30 October, put the 12-month rise in civilian compensation costs at 3.4%. It is a different measure from the 4.5% rise in nonfarm business hourly compensation shown here.
Productivity and unit labour costs by quarter (change in %, annual rate)
| Quarter | Output per hour | Unit labour cost |
|---|---|---|
| Q3 2025 | 4.5 | 0.1 |
| Q4 2025 | 1.2 | 4.7 |
| Q1 2026 | 1.4 | 3.7 |
| Q2 2026 | 2.1 | 1.9 |
| Q3 2026 | 3.6 | -0.7 |
Nonfarm business sector, seasonally adjusted. Q3 2026 is preliminary; earlier quarters as revised in the 5 November 2026 release.
Labour share reaches a series low of 53.0%
The labour share is the percentage of output that accrues to workers in the form of compensation. Its series begins in the first quarter of 1947, and no quarter since then has come in below the third quarter’s 53.0%, according to the release.
The level is not comparable with the 52.8% the bureau reported for the second quarter in September, set out here on 4 September, when it was also a series low. The annual update revised the output and compensation measures behind the share back to 2021. On the revised data, the bureau’s labour share index puts the third quarter below the second.
The price and cost tables show prices and nonlabour payments running ahead of labour costs. Over the past year, the output price deflator for nonfarm business rose 4.1%, against the 2.4% rise in unit labour costs.
Unit nonlabour payments rose 6.0% over the same period. In the third quarter alone they rose at a 5.2% annual rate and prices at 2.0%, while unit labour costs fell.
The gap is wider still over a longer span. Measured from 2017, the base year of the bureau’s indexes, unit labour costs were 24.4% higher in the third quarter, while unit nonlabour payments were up 43.5%.
Pay has also trailed output per hour since 2017. Productivity stood 21.9% above its 2017 level and real hourly compensation 10.8% above it. Real hourly compensation is adjusted by consumer prices, so the comparison with output per hour is indicative rather than exact.
Nonfarm business indexes, third quarter 2026 (2017 = 100)
| Measure | Index |
|---|---|
| Productivity | 121.9 |
| Output | 129.1 |
| Hours worked | 105.9 |
| Hourly compensation | 151.7 |
| Real hourly compensation | 110.8 |
| Unit labour costs | 124.4 |
| Unit nonlabour payments | 143.5 |
| Output price deflator | 132.7 |
Seasonally adjusted, preliminary. The deflator is the value-added output price deflator for the nonfarm business sector.
Factories lag as nondurable output shrinks
Manufacturing productivity rose 0.3% in the third quarter. Output grew 1.3% and hours worked 1.0%.
The two halves of manufacturing moved in opposite directions. Durable manufacturing productivity rose 2.2% on output growth of 3.8%. Nondurable productivity fell 1.7% as output shrank 1.6%.
Unit labour costs in manufacturing rose 2.7% in the quarter, as hourly compensation grew 3.0%. Over the year they rose 4.0%, while manufacturing productivity rose 0.4%.
The bureau notes that its manufacturing output series uses different concepts, sources and methods from the business and nonfarm business series. The two output measures are not directly comparable.
Manufacturing productivity (change in %)
| Sector | Quarter | Year |
|---|---|---|
| Total | 0.3 | 0.4 |
| Durable | 2.2 | 1.9 |
| Nondurable | -1.7 | -0.7 |
Quarter is the change from the second quarter at a seasonally adjusted annual rate, preliminary; Year is the change from the third quarter of 2025.
The release also revised earlier periods. Second-quarter productivity was revised to 2.1% from the 1.4% set out here on 4 September.
All of the revision came from higher output; hours were unrevised. Unit labour costs for the quarter were revised up by the same margin to 1.9%.
Hourly compensation was revised up 1.4 points. Real hourly compensation now shows a 1.9% decline for the quarter, against a 3.3% decline in the earlier estimate.
Annual productivity growth now stands at 2.3% for 2025 and 3.2% for 2024. Each is 0.2 point above the earlier estimate, while 2023 was trimmed to 2.0%.
Unit labour cost growth was revised down to 1.9% for 2025 and 2.0% for 2024. In the nonfinancial corporate sector, second-quarter productivity growth was revised to 3.4% from 2.2%.
What to watch: The October employment report on Friday 6 November at 13:30 GMT. October consumer prices on Tuesday 10 November at 13:30 GMT. The second estimate of third-quarter GDP on Wednesday 25 November at 13:30 GMT. The revised third-quarter productivity and costs release on Tuesday 8 December at 13:30 GMT.
Figures are from the Bureau of Labor Statistics release Productivity and Costs, Third Quarter 2026, Preliminary, dated 5 November 2026, and its tables; GDP is from the Bureau of Economic Analysis advance estimate of 29 October 2026. Percentages and comparisons not attributed to a source are The Edge’s calculations.
Sources: Bureau of Labor Statistics, Bureau of Economic Analysis, The Edge.
