Yesterday, the U.S. Bureau of Labor Statistics reported that nonfarm business sector labor productivity decreased 1.5 percent in the first quarter of 2025.

Interestingly, output decreased by 0.2 percent, and hours worked increased by 1.3 percent.

In other words, everyday workers are putting in more hours for less productivity.

This is the first decline in nonfarm business sector labor productivity since the second quarter of 2022.

Productivity is a key indicator of an economy’s overall health. A decline in productivity, especially when there is the same or greater amount of input (i.e., hours worked), often will negatively impact an economy by slowing down economic growth.

The long-term effects of sustained lower productivity are evident in increasing unit labor costs, as already reflected in the data.  

The nonfarm business sector increased 6.6 percent in the first quarter of 2025, reflecting a 5.0-percent increase in hourly compensation and a 1.5-percent decrease in productivity. Unit labor costs increased 1.9 percent over the last four quarters.

As productivity decreases and unit labor costs increase, this often leads to lower wages and a weaker economy.

Reduced productivity can also add to inflationary forces as businesses pass on increased costs to consumers. 

While the Administration is touting an unemployment rate that is holding steady, the reality is that they should be more concerned about the productivity of American companies and the potential impacts of reduced output.