Financial News: U.S. Labor Productivity Slumps 1.5% In Q1, Much

U.S. Labor Productivity Slumps 1.5% In Q1, Much More Than Previously Estimated

(RTTNews) - Revised data released by the Labor Department on Thursday showed U.S. labor productivity tumbled by much more than previously estimated in the first quarter of 2025.

The Labor Department said labor productivity slumped by 1.5 percent in the first quarter compared to the previously reported 0.8 percent decline. Economists had expected the decrease by labor productivity to be revised to 0.7 percent.

The much bigger than previously estimated decrease by productivity, a measure of output per hour, largely reflected a much bigger than previously estimated increase by hours worked.

The report said hours worked jumped by 1.3 percent in the first quarter compared to the previously reported 0.6 percent increase, while output edged down by 0.2 percent compared to the previously reported 0.3 percent dip.

The pullback by labor productivity in the first quarter, which marked the first decline since the second quarter of 2022, came following a 1.7 percent surge in the fourth quarter of 2024.

"The noticeably larger-than-anticipated downward revision to Q1 productivity should be taken with a grain of salt as the data are volatile from quarter to quarter and even year to year," said Ryan Sweet, Chief US Economist at Oxford Economics.

He added, "Though this was the first decline in productivity since 2022, it doesn't alter our view that trend productivity remains solid, something that sets the US apart from other advanced economies and a reason why US exceptionalism isn't dying."

Largely reflecting the downward revision to labor productivity, the Labor Department also said unit labor costs soared by 6.6 percent in the first quarter compared to the previously reported 5.7 percent spike. Economists had expected the jump in unit labor costs to be unrevised.

The upward revision to unit labor cost growth also came as hourly compensation shot up by 5.0 percent compared to the previously reported 4.8 percent surge.

The sharp increase by unit labor costs in the fourth quarter came on the heels of an upwardly revised 3.8 percent jump in the fourth quarter of 2024.

"Unit labor costs were revised higher in Q1 because of some idiosyncratic factors, but it doesn't alter our forecast for inflation," said Sweet. "The labor market isn't a source of inflationary pressures."

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