US productivity growth in the second quarter exceeded expectations, unit labor costs were lower than expected to ease inflationary pressure
The Zhitong Finance App learned that data released by the US Bureau of Labor Statistics on Thursday showed that the US labor productivity growth rate in the second quarter exceeded market expectations. Against the backdrop of companies continuing to increase investment in artificial intelligence (AI) and technology and trying to cope with rising costs, the increase in unit labor costs was lower than expected, providing a positive signal for the Federal Reserve to control inflation.
According to the data, the labor productivity (i.e. hourly output) of non-farm enterprises in the US increased by 1.4% at an annualized quarterly rate in the second quarter, which was higher than general market expectations, and further accelerated from 0.8% after the first quarter's revision. Among them, the increase in labor productivity in the first quarter was 0.5 percentage points higher than the previously announced value.
At the same time, unit labor costs increased by 1.3% annualized in the second quarter, lower than market expectations, and remained the same as the 1.3% revised in the first quarter, indicating that in the context of wage growth, enterprises effectively relieved cost pressure through efficiency improvements.
Productivity improvements mainly come from faster output growth and continuous improvement in enterprise efficiency
Judging from the specific composition, the improvement in labor productivity in the US in the second quarter mainly benefited from a marked acceleration in corporate output growth. According to the data, the actual output of non-agricultural enterprises increased by 1.7% annualized in the second quarter; the total working hours increased by only 0.3%.
Since the output growth rate is significantly faster than the increase in working hours, labor productivity has been further increased. On a year-over-year basis, the labor productivity rate of non-farm enterprises in the US increased by 2.2% year-on-year in the second quarter.
The US Bureau of Labor Statistics said that the increase in productivity this quarter reflects that companies have achieved higher output efficiency while maintaining a low employment growth rate. Among them, output growth in the second quarter hit the fastest level since the third quarter of 2025.
According to the data, since the beginning of the current economic cycle in the fourth quarter of 2019, the annualized labor productivity growth rate of US non-farm enterprises reached 2.1%, which is higher than 1.5% in the previous economic cycle from 2007 to 2019, and is also basically consistent with the long-term average of 2.1% since 1947.
The effects of AI investment are still being observed. Officials say it is still difficult to make a conclusion
In recent years, the Federal Reserve, economists, and investors have been closely watching whether companies' hundreds of billions of dollars of investment in artificial intelligence have begun to translate into increased labor productivity.
Currently, US companies, including large technology companies, continue to increase AI infrastructure construction, and capital expenditure related to data centers, GPUs, memory chips, etc. is growing rapidly. The market generally expects AI to bring about a new revolution in productivity.
However, according to current official data, it is still difficult for AI to draw clear conclusions about the increase in overall labor productivity.
The US Bureau of Labor Statistics pointed out that labor productivity data fluctuates greatly from quarter to quarter, and the long-term effects of AI investment will still require more time to observe.
At the same time, AI investment is driving data center construction to continue to heat up, driving the rapid growth in demand for memory chips, servers and other technological hardware, and driving up the prices of related products.
Furthermore, the situation in the Middle East has led to an increase in energy and transportation costs, which also continues to erode the actual income of residents.
Moderate increase in unit labor costs helps ease inflationary pressure
For the Federal Reserve, one of the most significant benefits of increasing productivity is to help ease inflationary pressure brought about by rising wages.
According to the data, the unit labor cost in the US increased by only 1.3% in the second quarter, mainly due to the 2.7% increase in hourly pay and 1.4% increase in labor productivity.
Due to the simultaneous increase in labor productivity, the increase in labor costs that enterprises need to bear for their production unit products has been clearly curtailed. Over the past four quarters, US unit labor costs have increased by 1.4% cumulatively.
The US Bureau of Labor Statistics points out that the unit labor cost is essentially equal to the ratio of hourly wage to labor productivity, so rising wages usually drive up unit labor costs, and increased productivity helps reduce this indicator.
However, after deducting inflation, the actual hourly wage in the US fell by 3.1% on an annualized basis in the second quarter, the biggest decline since the end of 2022; the cumulative decline over the past four quarters was 0.1%.
Furthermore, the share of labor remuneration in total enterprise output fell to 52.9%, the lowest level since statistics were made in 1947, which meant that the share of corporate profits increased further, while the share of workers' income in GDP continued to decline.
Manufacturing productivity is improving simultaneously, and the durable goods industry is performing better
In addition to overall non-farm payrolls, US manufacturing productivity also improved in the second quarter. The data showed that labor productivity in the manufacturing industry increased by 1.9%; manufacturing output increased by 4.6%; working hours increased by 2.6%. Among them: the productivity of the durable goods manufacturing industry increased by 2.7% and the output increased by 7.3%; the productivity of the non-durable goods manufacturing industry increased by 2.0%, mainly driven by a 0.5% decrease in working hours. On a year-on-year basis, the overall labor productivity of the manufacturing industry increased by 0.9%.
Meanwhile, labor costs per manufacturing unit remained flat in the second quarter, as 1.9% wage growth was completely offset by a similar increase in productivity; however, labor costs per manufacturing unit increased by 3.5% over the past year.
According to the US Bureau of Labor Statistics, since the current economic cycle (from the end of 2019 to the present), the annualized growth rate of labor productivity in the manufacturing industry has been 0.5%, which is significantly higher than 0.1% in the previous economic cycle, but still lower than the long-term average of 2.1% since 1987.
Walsh: AI will eventually become an important force in curbing inflation in the long term
Federal Reserve Chairman Walsh also publicly stated earlier that he believes artificial intelligence will eventually help ease long-term inflationary pressure.
While attending the US Senate hearing on July 15, he said, “I believe that over time, increased productivity will have a deflationary effect on a structural level. I think whatever field technology touches will eventually become cheaper.”
However, some economists also warned that if AI continues to improve enterprise efficiency, some companies may slow down recruitment or even reduce the number of employees as a result, bringing new challenges to the job market. Therefore, how AI will reshape the US labor market still needs to be further verified by more data in the future.