U.S. Labor Productivity Growth Falls Well Short Of Estimates In Q1

(RTTNews) - Labor productivity in the U.S. increased by much less than expected in the first quarter of 2026, according to preliminary data released by the Labor Department on Thursday.

The report said labor productivity climbed by 0.8 percent in the first quarter after jumping by a downwardly revised 1.6 percent in the fourth quarter of 2025.

Economists had expected productivity to shoot up by 1.7 percent compared to the 1.8 percent leap that had been reported for the previous quarter.

"The pace of productivity growth slowed in Q1, but productivity is still up by nearly 3% on an annual basis and continues to run well above prior cycle averages," said Matthew Martin, Senior U.S. Economist at Oxford Economics.

He continued, "We do not think the current figures reflect any AI-related boost but rising adoption rates mean it will begin feeding through within the next five years."

The weaker than growth in productivity, a measure of output per hour, came as a 1.5 percent jump in output was partly offset by a 0.7 percent increase in hours worked.

Meanwhile, the Labor Department said unit labor costs surged by 2.3 percent in the first quarter after soaring by an upwardly revised 4.6 percent in the fourth quarter.

Unit labor costs were expected to jump by 2.0 percent compared to the 4.4 percent spike that had been reported for the previous quarter.

The sharp increase in unit labor costs came as hourly compensation shot up by 3.1 percent, more than offsetting the growth in productivity.

Real hourly compensation, which takes changes in consumer prices into account, fell by 0.5 percent during the quarter.

"Unit labor costs remained on a downward trend on an annual basis, and with the pace of productivity growth, they are unlikely to be a source of inflationary pressure," said Martin.

He added, "The depressed rate of hiring, particularly after accounting for the war in Iran, means this measure is unlikely to accelerate in the near-term."