Overview
- The Labor Department reported on Thursday that nonfarm labor productivity rose at a 1.4% annualized rate in the second quarter as output increased 1.7% while hours worked rose just 0.3%.
- Unit labor costs climbed 1.3% in Q2 and nominal hourly compensation rose 2.7%, but real hourly compensation fell about 3.1%, indicating workers’ purchasing power weakened despite higher output.
- Recent corporate and industry reports link parts of the productivity gain to AI and efficiency measures, with Coinbase reporting engineering productivity improvements and five big banks cutting more than 10,000 jobs in the quarter.
- Economists and central bankers view sustained AI-driven productivity as likely to ease labor-cost pressure and reduce a key source of inflationary risk, which could influence future Fed decisions about interest rates.
- Analysts warn that productivity gains built heavily on job cuts could eventually limit consumer demand, and the worker share of nominal GDP fell to a record low of 52.9% in Q2, shifting more of the gains to owners and shareholders.