US Worker Productivity Surges in 3rd Quarter—Fastest Gain in 2 Years

‘The economy can grow without needing to produce as many jobs as in the past,’ says RSM economist Joseph Brusuelas.

An employee of Independent Can Company works on the manufacturing line in Belcamp, Md. Ryan Collerd/AFP via Getty Images

U.S. labor productivity posted its strongest gain in two years in the third quarter, driven in part by ongoing business investment, according to preliminary Bureau of Labor Statistics (BLS) data released on Jan. 8.

During the July–September period, worker productivity surged by 4.9 percent, from an upwardly adjusted 4.1 percent increase in the second quarter, marking the strongest reading since the third quarter of 2023.

The market had penciled in a 3 percent gain.

By comparison, productivity rose 3.1 percent in the same three-month span in 2024.

Labor productivity—measured as output per hour—is calculated by dividing an index of real output by an index of total hours worked by all types of workers, including employees, business owners, and unpaid family members, the BLS noted.

Output surged 5.4 percent while hours worked edged up 0.5 percent. Manufacturing labor productivity rose 3.3 percent, and nonfinancial corporate-sector worker productivity advanced 3 percent.

The data signal that businesses are doing more with current staffing levels rather than expanding hours or increasing headcount.

Meanwhile, unit labor costs—the amount companies spend on worker compensation per unit of production—declined by 1.9 percent, from an upwardly revised 2.9 percent slide in the previous quarter.

Economists had forecast 1 percent growth.

This suggests that while the economy is growing, labor is not contributing to inflationary pressures.

AI or Not AI

Various employment data points support the case that the labor market is firmly entrenched in a low-fire, low-hire environment: layoffs are low, hiring is anemic, job openings have declined, and wages have risen.

A new facet of the U.S. economy is that it can grow without creating many jobs, said RSM chief economist Joseph Brusuelas.

But while some market watchers have attributed productivity gains to artificial intelligence (AI), Brusuelas says that the better-than-expected numbers have little to do with the new technology, although he expects an AI-fueled productivity boom on the horizon.

“We take time here to note that the increase in productivity that started in 2023 has nothing to do with artificial intelligence,” Brusuelas said in a Jan. 9 note. “It is simply a function of investment in capital expenditures during the machine learning era that preceded what we think is a coming productivity boom driven by artificial intelligence.”

In the spring of 2023, tools such as ChatGPT were still new, and corporate AI adoption was limited.

Following the red-hot, extremely tight post-pandemic labor market, when businesses struggled to find skilled workers, companies made operational adjustments that likely supported the ongoing productivity gains.

OpenAI's ChatGPT app (Center 2nd R) and icons of other AI apps on a smartphone screen in Oslo, Norway. Olivier Morin/AFP via Getty Images

In December, employers added a smaller-than-expected 50,000 new jobs. The unemployment rate fell to 4.4 percent from a downwardly revised 4.5 percent.

At the same time, the Federal Reserve Bank of Atlanta’s widely watched GDPNow Model shows that the fourth-quarter gross domestic product growth rate was 5.1 percent, driven by consumer spending, net exports, and changes in private inventories.

“One factor driving this new dynamic is the rise in productivity,” Brusuelas said.

“The economy can grow without needing to produce as many jobs as in the past. As firms learn they can become more efficient without as many workers, one should expect margins and profits to improve.”

Speaking to reporters at last month’s post-meeting press conference, Federal Reserve Chairman Jerome Powell noted that the technology can be seen as supportive for AI-fueled productivity, which could have implications.

“I think it makes people who use it more productive. It may make other people have to find other jobs, though,” Powell said. “So it could have productivity implications while also having social and labor market implications that we don’t have the tools to deal with.”

For now, workers are finding it difficult to navigate the U.S. labor market, with AI posing a barrier to finding employment.

Andrew Crapuchettes, CEO and founder of job board RedBalloon, told The Epoch Times that AI tools, such as automated applicant tracking systems and résumé customization, are making it harder for job seekers to stand out from the vast talent pool.

Although this is a hurdle for workers to overcome, it is also understandable for businesses to rely on AI for human resource tasks, he notes.

“The problem is that employers have no choice when they have 1,000 applicants for a job, but to use some sort of AI or [automated applicant tracking systems] to kind of weed through the significant number of applicants that have come across their desk,” Crapuchettes said.

“So what’s happening then is the gatekeepers, the electronic gatekeepers of these companies, are holding people to an AI standard—not a people standard—because we know that people are more complicated than a résumé.”

With AI still in its infancy, the verdict is out on whether the technology will displace a significant number of jobs or augment rather than replace these positions.