Unit Labor Costs Revised Up Sharply and Productivity Drops, Raising Inflation Risks

U.S. labor productivity was revised down sharply along with overall economic output growth, while employers spent more on U.S. labor.

The growth rate of unit-labor productivity, a measure of goods and services produced per hour worked, was revised down to an annualized 3.5 percent in the second quarter, the U.S. Labor Department said Thursday. The preliminary estimate was for 3.7 percent growth.

Economists had forecast a smaller revision to a 3.6 percent annual growth rate.

Unit-labor costs, a measure of wage inflation, rose at a revised 2.2 percent annual rate in the second quarter, up from the preliminary estimate of 1.6 percent. This means that it cost employers more to produce a unit of output in the April through June period.

The overall output of goods and services rose at a revised 1.9 percent rate, down form the prior estimate of 2.4 percent. Hours worked fell at a 1.5 percent annual rate, a bigger slowdown than the 1.4 percent initially estimated.

Over the past 12 months, productivity has climbed 1.3 percent, the first positive reading since the fourth quarter of 2021. Productivity tends to fall alongside unemployment as newer workers are often less productive and employers tend to hire less qualified workers as labor becomes scarce.