U.S. productivity surges as businesses shift from cheap labor to investment

The Bureau of Labor Statistics reported labor productivity rose at a 4.9% annual rate in Q3 2025, and unit labor costs fell 1.9% that quarter.

U.S. labor productivity accelerated sharply in the third quarter of 2025, the Bureau of Labor Statistics reported, rising at a 4.9 percent annual rate. That outcome followed an upwardly revised 4.1 percent increase in the second quarter and exceeded economist expectations. Unit labor costs declined 1.9 percent in Q3 even as hourly compensation rose 2.9 percent. The article reports these patterns alongside signs that businesses are investing in equipment and efficiency amid tighter labor markets. Key data points: - Labor productivity rose at a 4.9% annual rate in Q3 2025; output increased 5.4% while hours worked rose 0.5%. - Unit labor costs fell 1.9% in Q3 2025, while hourly compensation increased 2.9% that quarter. - Over the past four quarters, productivity rose 1.9% and unit labor costs increased 1.2%. - Manufacturing output rose 2.6% while hours worked fell 0.7%; durable goods output rose 3.0% while hours declined 1.7%, implying a 4.7% productivity gain in durables. - Core capital goods new orders (nondefense, excluding aircraft) rose 3.1% in the year through October; new orders for computers and electronic products were up 3.8%, machinery orders rose 4.2%, and electrical equipment orders climbed 4.9%. - The BLS revised productivity growth for the current business cycle to a 2.0% annualized rate from a prior 1.8% estimate. Summary: The back-to-back strong quarterly readings and revisions point to increased output per hour and a move toward productivity-enhancing investment as firms cope with tighter labor supply. Falling unit labor costs alongside rising output reduce a source of wage-driven inflationary pressure in the data. The government will release December employment data on Friday, which could provide additional information on whether the labor market dynamics behind these trends are continuing.