U.S. Labor Productivity Decreases For First Time Since 2022

(RTTNews) - The Labor Department released a report on Thursday showing a pullback by U.S. labor productivity in the first quarter of 2025 along with a sharp increase by unit labor costs.

The report said labor productivity fell by 0.8 percent in the first quarter after jumping by an upwardly revised 1.7 percent in the fourth quarter of 2024.

Economists had expected labor productivity to decrease by 0.4 percent compared to the 1.5 percent increase that had been reported for the previous quarter.

The bigger than expected pullback by labor productivity in the first quarter marked the first decline since the second quarter of 2022.

The decrease by labor productivity, a measure of output per hour, came as output fell by 0.3 percent and hours worked increased by 0.6 percent.

"The decline in productivity reflects the same special factors that pushed down GDP growth in Q1, notably the surge in imports, and we expect it will be at least partly reversed with a more positive reading on GDP growth in Q2," said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

Meanwhile, the report said unit labor costs soared by 5.7 percent in the first quarter after shooting up by a revised 2.0 percent in the fourth quarter.

Economists had expected unit labor costs to spike by 5.3 percent compared to the 2.2 percent surge originally reported for the previous quarter.

The sharp increase by unit labor costs reflected the pullback by labor productivity as well as a 4.8 percent jump by hourly compensation.

However, the Labor Department said real hourly compensation, which takes changes in consumer prices into account, increased by a much more modest 1.0 percent.

Vanden Houten said the surge in unit labor costs was the by-product of "special factors and isn't a signal of a reacceleration in wage growth."

"While the Federal Reserve is laser-focused on inflation right now, officials don't see the labor market as a source of inflationary pressures," she added.