(May 7): US labour productivity continued to rise in the first quarter, though at a slower pace, indicating companies are gradually improving worker efficiency to mitigate costs.
Productivity, or non-farm employee output per hour, increased at a 0.8% annualised rate after a downwardly revised 1.6% advance in the fourth quarter, data from the Bureau of Labor Statistics showed Thursday.
Compared with a year ago, productivity climbed 2.9%, the largest annual increase since 2024.The recent trend in efficiency gains has helped ensure wage pressures are no longer a source of inflation, corroborating the views of Federal Reserve officials. Businesses are also ramping up spending on technologies like artificial intelligence to help ease the burden of other cost increases, such as those related to tariffs or the war in Iran.
Labour costs are the biggest expense for many businesses, so companies invest in new technology and equipment to allow their workers to become more efficient. Improving productivity helps firms to temper price hikes for those American consumers who are increasingly stretched financially.
Unit labour costs — what businesses pay employees to produce one unit of output — rose 2.3% from the previous quarter.
Hours worked
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Hours worked climbed 0.7% in the first quarter after falling 0.2% in the prior period. Hourly compensation, unadjusted for inflation, increased an annualised 3.1%. However, after adjusting for inflation, worker compensation fell at the beginning of the year.
In fact, the share of output that workers receive in the form of compensation was just 54.1% in the first quarter, the lowest recorded value since the series began in 1947, the BLS said.
The BLS report also showed manufacturing productivity advance in the first quarter by the most in a year, rebounding from an end-of-year pullback.
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US economic growth accelerated at the start of the year after the longest-ever federal government shutdown limited growth in the closing months of 2025. Business investment surged, fuelled by spending related to AI.
Economists generally expect efficiency gains to continue this year amid the steady rush of investment in AI. More favourable business-tax provisions could also encourage additional investment now that some of the uncertainty over tariffs and trade policy has lifted.
The productivity report showed first-quarter non-farm business output, which excludes the impact of government spending, increased an annualised 1.5% — slightly firmer than at the end of 2025.
Separate figures out Thursday from Challenger, Gray & Christmas Inc showed total private-sector layoff announcements, meanwhile, were about 10% lower in the first four months of 2026 versus the same period a year earlier.
The government’s monthly jobs report due Friday is expected to show a solid increase in payrolls, accelerating wage growth and stable unemployment in April after job growth rebounded the prior month.
Another government report out Thursday showed initial applications for unemployment benefits remained low last week, signalling limited layoffs across the broader economy.
Uploaded by Magessan Varatharaja
