U.S. worker productivity grew at its fastest pace in a year during the third quarter, the Labor Department reported Thursday, outpacing economists’ expectations and extending a streak of acceleration that officials say now rivals the boom years of the early 2000s.
Nonfarm business productivity rose at a 3.6 percent annual rate from July through September, beating forecasts of 2.8 percent. The government also revised second-quarter growth upward, to 2.1 percent from an earlier estimate of 1.4 percent.
Business output climbed at a 3.7 percent annual rate in the quarter while hours worked rose just 0.1 percent — meaning companies produced far more without putting in meaningfully more labor time. The broader economy grew at a 3.4 percent pace over the same period, lifted by strong business investment and consumer spending.
This marks the third consecutive quarter of accelerating productivity growth, climbing from a 1.2 percent annual rate in the final quarter of 2025 to 1.4 percent in the first quarter of this year, 2.1 percent in the second, and now 3.6 percent in the third.
Revised figures released Thursday show the trend has been stronger than previously known. Productivity growth for 2024 was revised up to 3.2 percent from 3.0 percent, and 2025 was revised up to 2.3 percent from 2.1 percent.
AI investment behind the surge
The acceleration comes as businesses have poured money into artificial intelligence, software, and equipment, betting that technology can boost output without requiring more labor hours. For workers, faster productivity growth can, in theory, support higher wages, and it also gives companies room to control costs as the economy keeps expanding.
Hourly compensation rose at a 2.9 percent annual rate in the third quarter and increased 1.1 percent after accounting for inflation. Because output per hour grew faster than pay, unit labor costs actually fell at a 0.7 percent rate — well below the 0.3 percent increase economists had expected. The government also revised unit labor cost growth lower for both prior years, to 2.0 percent for 2024 and 1.9 percent for 2025.
Over the six months through September, productivity grew at roughly a 2.8 percent annual rate, a pace that officials say is comparable to the 2001–2007 expansion. Since the end of 2019, productivity has grown at a 2.2 percent annual rate, up from 1.5 percent during the business cycle before it.
A mixed picture in manufacturing
The gains were not uniform across industry. Durable-goods manufacturers increased output at a 3.8 percent annual rate while hours worked rose 1.6 percent, pushing their productivity up 2.2 percent. Nondurable-goods factories saw productivity fall 1.7 percent, leaving overall manufacturing productivity up just 0.3 percent.
Perhaps the most striking figure in the report: workers’ share of nonfarm business output fell to 53.0 percent, the lowest level in records dating back to 1947. Even as the economy produces more per hour worked, a shrinking slice of that output is flowing to labor rather than capital.
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