U.S. Labor Productivity Growth Slows in Q1, AI Investments Rise

U.S. labor productivity growth slowed in the first quarter, indicating that companies are gradually improving employee efficiency to alleviate cost pressures. According to Jin10, data from the U.S. Bureau of Labor Statistics on Thursday showed that nonfarm employee productivity, measured by output per hour, grew at an annualized rate of 0.8%. This is a revision from the 1.6% increase in the fourth quarter of last year. Year-over-year, productivity rose by 2.9%, marking the largest annual increase since 2024. The recent trend of efficiency improvements is helping to ensure that wage pressures do not become a source of inflation, aligning with the views of Federal Reserve officials. Companies are also increasing investments in technologies like artificial intelligence to mitigate the impact of rising costs. Labor costs remain one of the largest expenses for many businesses. Unit labor costs, which represent the cost of labor per unit of output, rose by 2.3% compared to the previous quarter. Hourly compensation, unadjusted for inflation, grew at an annualized rate of 3.1%, while inflation-adjusted real wages declined at the beginning of the year. The report also indicated that U.S. manufacturing productivity recorded its largest increase in a year during the first quarter, reversing the decline seen at the end of last year. Excluding the impact of government spending, nonfarm business output grew at an annualized rate of 1.5% in the first quarter, slightly above the level at the end of 2025.