U.S. Q1 Labor Productivity, Costs Growth Revised Lower

(RTTNews) - U.S. nonfarm business sector productivity slowed much more than initially estimated and unit labor costs increased less than expected in the first quarter of the year, revised data from the Department of Labor showed on Thursday.

Worker productivity, which is measured as output per hour, rose an annualized 0.3 percent from the previous quarter, reflecting a downward revision from the initially reported 0.8 percent increase. Economists had expected the rate to be revised down to 0.5 percent.

The latest productivity growth rate was the weakest since the first quarter of 2025, when productivity shrunk 0.9 percent. The fourth quarter worker productivity growth was unrevised at 1.6 percent.

Employee productivity grew 2.8 percent year-on-year, which was faster than the 2.5 percent increase in the previous three months and the fastest since the third quarter of 2024.

The report released by the labor department's Bureau of Labor Statistics also showed that unit labor costs, which is measured as the ratio of hourly compensation to labor productivity, rose 1.8 percent quarter-on-quarter in the January to March period. Labor costs were initially reported to have risen 2.3 percent in the first quarter. Economists had expected a revision to 2.5 percent.

The fourth quarter growth in unit labor costs was downwardly revised to 2.1 percent from 4.6 percent. Unit labor costs rose 0.5 percent year-on-year in the first quarter after a 1.8 percent increase in the previous three months.

The revision in the labor costs quarterly growth reflected a 1.0-percentage point downward revision to hourly compensation and a 0.5-percentage point downward revision to labor productivity. Hourly compensation rose 2.1 percent from the previous three months and 3.3 percent from a year ago.

"The signs of a warming labor market amid weak labor supply growth could imply tightening in labor market conditions," Oxford Economics economist Matthew Martin said. "Even if this is sustained, though, productivity growth, anchored inflation expectations and a weak quits rate mean the labor market won't be a source of inflationary pressure."

"Strong productivity growth also implies it would take markedly higher wage inflation to filter through to higher consumer services prices," the economist added.