Labor Productivity Hits a Sweet Spot in Second Quarter 2025

By SBE Council at 8 August, 2025, 11:27 am

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by Raymond J. Keating -

Labor productivity is critical for business profits, for workers' incomes and for economic growth. The latest measure showed that nonfarm business labor productivity hit a sweet spot in the second quarter of 2025 - increasing by 2.4 percent - after declining in the first quarter - registering -1.8 percent.

As the U.S. Bureau of Labor Statistics explains:

"Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all workers, including employees, proprietors, and unpaid family workers."

The BLS summarizes further:

"Measures of labor productivity growth show the changes from period to period in the amount of goods and services produced per hour worked. They reflect the joint effects of many influences, including changes in technology; capital investment; level of output; utilization of capacity, energy, and materials; the organization of production; managerial skill; and the characteristics and effort of the work force."

The sweet spot for labor productivity is when both output and hours worked increase, but output increases at a more rapid pace. That was the case in the second quarter, with output increasing by 3.7 percent and hours worked by 1.3 percent.

In fact, the same scenario prevailed during the second, third and fourth quarters of 2024.

The first quarter decline in productivity saw output fall by 0.9 percent, while hours worked increased by 1.1 percent.

The first quarter negative cannot be ignored, nor can the volatility and uncertainty lurking over the economy, but the second quarter performance was welcome news, and the hope is that this bright spot will persist.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He is the author of " The Weekly Economist " book series, and 10 Points from Walt Disney on Entrepreneurship .