American worker productivity rose more than expected in the fourth quarter of 2025, capping a year of robust efficiency gains that have confounded critics who predicted that trade and immigration policies would slow the economy.
The Bureau of Labor Statistics reported Thursday that nonfarm business sector labor productivity increased at an annualized rate of 2.8 percent in the fourth quarter, well above the 1.9 percent analysts had forecast. Output rose 2.6 percent while hours worked fell 0.2 percent.
The report also revised the third quarter reading upward, to a 5.2 percent annualized rate from an earlier estimate of 4.9 percent — the strongest quarterly gain in five years. Together, the two quarters dispel any notion that the third quarter’s exceptional performance was a one-time anomaly.
The revisions also pushed up the productivity growth rate for the entire current business cycle, which began in the fourth quarter of 2019, from 2.0 percent to 2.2 percent annualized. That matches the long-run historical average going back to 1947 and represents a significant improvement over the 1.5 percent rate of the previous business cycle, from 2007 to 2019.
The improvement in the cycle average reflects a pattern of upward revisions across multiple prior quarters. Hours worked were revised down in each quarter from the second quarter of 2024 through the third quarter of 2025, while output was left unchanged — meaning workers were producing the same amount in less time than previously measured.
Economists who had been skeptical of strong productivity gains are taking note. The data suggests that business investment in new technologies, including artificial intelligence, is beginning to show up in measurable efficiency improvements across the broader economy.
Companies facing higher input costs from tariffs and tighter labor markets resulting from immigration restrictions have also had strong incentives to invest in efficiency. Rather than the resource misallocation that some economists predicted would follow from trade restrictions, the data so far shows firms responding by squeezing more output from each hour worked.
For the full year 2025, nonfarm business productivity rose 2.2 percent, while unit labor costs — what businesses pay employees to produce one unit of output — increased just 1.9 percent. That combination is broadly consistent with the Federal Reserve’s 2 percent inflation target and suggests that wage growth is not feeding into broader price pressures.
Manufacturing productivity told a different story in the fourth quarter, falling 1.9 percent as output dropped 2.2 percent. Unit labor costs in manufacturing surged 8.3 percent, the largest quarterly increase since the third quarter of 2022. For the full year, however, manufacturing productivity rose 2.0 percent, the largest annual gain since 2010. Manufacturing productivity is compiled using industry output and hours measures that aren’t directly comparable with the broader nonfarm business series.
The productivity report was released Thursday alongside weekly jobless claims data showing unemployment applications remained low, ahead of the monthly jobs report due Friday.
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