Nonfarm business sector labor productivity increased 1.4% in the second quarter on a seasonally adjusted annualized basis, while unit labor costs rose a moderate 1.2%, the Bureau of Labor Statistics reported on Sept. 3.
The manufacturing sector posted stronger gains, with productivity rising 2.4% and unit labor costs falling 0.3%, a positive signal for U.S. industrial competitiveness, according to BLS data.
Productivity growth is considered one of the most important economic indicators because it measures the economy’s ability to produce more output per worker, the fundamental driver of long-run improvements in living standards.
The 1.4% nonfarm productivity increase, combined with moderate unit labor cost growth, is consistent with an economy that is generating wage gains without stoking excessive inflation, a combination the Federal Reserve has sought to achieve.
For American workers, productivity growth enables employers to raise wages without raising prices, supporting real income gains. The 2.4% manufacturing productivity gain is particularly significant because it suggests U.S. factories are becoming more efficient at a time when the administration is pursuing policies to reshore industrial production.
The falling manufacturing unit labor costs indicate that output gains are outpacing compensation increases in the factory sector, making U.S.-made goods more cost-competitive relative to imports.
The productivity data provides context for the August employment report released the same day, which showed the economy added 162,000 jobs. Together, the reports paint a picture of a labor market that is adding workers while also increasing output per worker.