U.S. manufacturing productivity performed better in the second quarter than previously estimated, while the cost of labor required to produce each unit of factory output declined, according to revised data released Thursday by the U.S. Bureau of Labor Statistics. The revisions offer a more favorable picture of industrial efficiency at a time when businesses, investors and policymakers are closely watching whether stronger economic activity can coexist with moderating cost pressures.

Labor productivity in the manufacturing sector increased at a seasonally adjusted annual rate of 2.4% during the April-to-June quarter, the BLS said. The agency had initially estimated a 1.9% increase. Productivity measures the amount of output produced for each hour worked and is a key gauge of how efficiently businesses use labor.

The upward revision reflected stronger output as well as somewhat higher hours worked. Manufacturing output increased at a revised annualized rate of 5.4%, compared with the preliminary estimate of 4.6%. Hours worked rose 2.9%, revised from 2.6%. Because output increased faster than labor hours, measured productivity strengthened.

The 5.4% rise in manufacturing output was the strongest quarterly increase since the second quarter of 2021, when output advanced 6.7%, according to the BLS. The improvement therefore represents more than a statistical adjustment: it places the spring quarter among the strongest periods for factory production growth of the current business cycle.

The revisions also changed the picture for manufacturing labor costs. Unit labor costs fell at a 0.3% annualized rate during the second quarter rather than remaining unchanged as previously estimated. Hourly compensation increased 2.1%, but the 2.4% productivity gain was sufficient to produce a decline in labor costs per unit of output.

It was the first quarterly decrease in manufacturing unit labor costs since the second quarter of 2021, when they also fell 0.3%. Unit labor costs are calculated by comparing hourly compensation with labor productivity. Compensation increases tend to push the measure higher, while stronger productivity reduces the labor cost associated with producing a given amount of output.

That relationship makes productivity particularly important to the inflation debate. Companies can generally accommodate stronger wage growth with less pressure on prices when workers produce more per hour. Conversely, compensation growth that persistently exceeds productivity gains can raise labor costs per unit of production and increase pressure on companies to absorb lower margins or raise prices.

The quarterly decline does not mean manufacturing labor-cost pressure has disappeared. Compared with the second quarter of 2025, manufacturing unit labor costs were still 3.4% higher. Manufacturing productivity increased 1.1% over the same four-quarter period. The latest data therefore show a substantial improvement in the quarter-to-quarter trajectory while leaving the longer-term cost picture more mixed.

The gains were especially pronounced among durable-goods producers. Productivity in durable manufacturing was revised sharply higher to a 3.6% annualized increase from the preliminary estimate of 2.7%. Durable-goods output rose 8.9%, while hours worked increased 5.1%. Unit labor costs in the sector declined at a 2.2% rate, reinforcing the indication that production expanded more quickly than labor expenses.

Nondurable manufacturing posted more moderate productivity growth. Productivity increased 2.1%, with output rising 1.4% while hours worked declined 0.6%. Unit labor costs increased 0.8% in the sector. The divergence illustrates how the headline manufacturing numbers can mask substantially different conditions across industrial categories.

The manufacturing revisions came within a broader productivity report that showed comparatively stable economy-wide estimates. Nonfarm business productivity increased at an unrevised 1.4% annualized rate in the second quarter as output rose 1.7% and hours worked increased 0.3%. From a year earlier, nonfarm business productivity was up 2.2%.

Nonfarm business unit labor costs increased at a revised 1.2% annualized rate, slightly less than the preliminary 1.3% estimate. The change reflected a downward revision in hourly compensation growth to 2.6% from 2.7%. Over the previous four quarters, nonfarm unit labor costs increased 1.4%.

The broader numbers are significant because nonfarm business productivity covers a much larger share of the economy than manufacturing alone. The combination of 2.2% year-over-year productivity growth and 1.4% year-over-year unit labor-cost growth suggests that productivity continued to absorb part of the increase in worker compensation, limiting the growth of labor costs relative to output.

Productivity performance has also strengthened relative to the previous U.S. business cycle. The BLS said nonfarm business productivity has increased at a 2.1% annualized rate since the fourth quarter of 2019, reflecting annualized output growth of 2.5% and growth in hours worked of 0.4%. That productivity pace exceeds the 1.5% annual rate recorded during the business cycle running from the fourth quarter of 2007 through the fourth quarter of 2019 and matches the long-term average dating to 1947.

Manufacturing has experienced a less powerful structural improvement. Factory-sector productivity has increased at a 0.5% annualized rate since the fourth quarter of 2019, according to the BLS. Output grew at a 0.2% annualized pace during that period while hours worked declined at a 0.3% rate. The manufacturing productivity rate nevertheless compares favorably with growth of just 0.1% during the preceding business cycle.

The second-quarter revisions therefore provide a stronger short-term signal than the manufacturing sector’s longer-run trend. If similar productivity gains persist, they could improve manufacturers’ ability to manage higher wages, materials costs and other operating expenses. If the improvement proves temporary, the year-over-year increase in unit labor costs would remain a more relevant indicator of underlying cost pressure.

Recent survey data provide evidence that factory activity remained in expansion after the second quarter. The Institute for Supply Management’s August Manufacturing PMI registered 54.6, marking an eighth consecutive month of expansion. The index eased from 55.6 in July but remained comfortably above the 50 level separating expansion from contraction.

The details of the ISM report were broadly consistent with continued production growth. Its production index stood at 58.3 in August, while the employment index registered 51.2. New orders remained in expansion territory at 53.7, although that measure declined from 56.7 in July. The figures suggest that factory activity retained momentum heading deeper into the third quarter even as some demand indicators cooled.

Cost conditions in the ISM survey were less benign than the BLS labor-cost figures. ISM’s prices index stood at 71.1 in August, unchanged from July and signaling continuing increases in manufacturers’ raw-material costs. Survey respondents reported higher prices across a range of industrial inputs, including metals, electronic components, petroleum-related products and freight.

The distinction is important. BLS unit labor costs measure compensation relative to productivity and therefore capture labor efficiency rather than the full range of costs faced by manufacturers. A company may experience improving labor productivity and declining unit labor costs while still confronting rising expenses for raw materials, energy, imported components, transportation or financing.

For the inflation outlook, that means the productivity revisions should be viewed as favorable but incomplete evidence. A sustained period in which productivity grows faster than compensation would reduce labor-related inflation pressure. But broader producer and consumer prices also depend on supply chains, commodities, trade costs, demand conditions and companies’ ability to pass expenses through to customers.

The BLS report also showed that inflation-adjusted compensation remained under pressure during the second quarter. Real hourly compensation in the nonfarm business sector decreased at a 3.3% annualized rate and was down 0.1% from a year earlier. The labor share of output — the portion of output accruing to workers through compensation — was 52.8%, the lowest reading in the series, which begins in the first quarter of 1947.

Those figures add another dimension to the productivity story. Higher output per hour can improve the economy’s capacity to raise living standards, but the distribution of the resulting gains depends on whether stronger productivity eventually translates into higher inflation-adjusted compensation, corporate profits, lower prices or some combination of the three.

For businesses, productivity growth can provide an important buffer when operating costs are volatile. Manufacturers that produce more output with relatively modest increases in hours worked can expand sales without increasing payroll expenses proportionately. That can support margins, investment and competitiveness, particularly in capital-intensive industries where efficiency gains compound over time.

The durable-goods figures may consequently draw particular attention because both output and productivity were revised substantially higher. An 8.9% annualized rise in durable manufacturing output accompanied by a 3.6% productivity gain indicates that the sector increased both production and labor inputs rapidly, but production expanded enough to deliver greater efficiency per hour.

At the same time, quarterly productivity data are inherently volatile and frequently revised as underlying information from the BLS, Bureau of Economic Analysis and Federal Reserve is updated. The BLS explicitly incorporates revisions to source data in its productivity calculations. A single quarter therefore cannot establish whether the economy has shifted permanently to a faster productivity regime.

Investors and policymakers are likely to focus instead on whether the pattern persists over several quarters. Continued output growth combined with moderate increases in hours worked would strengthen the case that businesses are improving efficiency. If compensation growth remains contained relative to productivity, unit labor costs could continue to provide a relatively favorable signal for inflation.

The second-quarter revision nevertheless moves the manufacturing data in that direction. Compared with the preliminary report, factories produced more, used somewhat more labor hours and achieved a significantly stronger increase in output per hour. The corresponding shift in unit labor costs from unchanged to a 0.3% decline marks a meaningful improvement in the sector’s measured cost performance.

Combined with continuing expansion in August manufacturing surveys, the data depict an industrial economy that entered the third quarter with stronger production momentum than the earlier productivity estimates suggested. The key question for the broader economy is whether those efficiency gains can be sustained long enough to offset ongoing wage, materials and supply-chain pressures without weakening growth.

The next preliminary BLS Productivity and Costs report, covering the third quarter of 2026, is scheduled for November 5. That release will provide the next major test of whether the second-quarter improvement in manufacturing productivity and unit labor costs represented the beginning of a more durable trend or primarily a strong quarter amplified by revisions to output data.