• Prior was +2.8%
• Productivity +1.8% vs +2.0% expected (lowest since Q1 2025)
• Prior productivity +2.8%

These numbers are very tough to draw conclusions from. There is so much variance in quarterly unit costs and productivity that the trend isn’t clear until years later. On the surface, we got weaker productivity and higher labor inflation than anticipated. The Fed isn’t likely to be influenced by this report.

The Q4 productivity and unit labor cost data from the BLS landed with a mixed message for Fed watchers in the prelim report released before this.

These numbers are notoriously tough to measure and the revisions can be enormous — we saw that again this cycle with benchmark payroll adjustments lopping off nearly 900K jobs. So take the quarterly swings with a grain of salt. What matters more is the trend, and the trend is encouraging: unit labor costs rose just 1.3% over the last four quarters. That’s a number the Fed can live with.

The manufacturing picture is uglier. Productivity fell 1.9% in Q4 as output dropped 2.2%, and unit labor costs surged 8.3% — the biggest jump since Q3 2022. That’s the kind of number that gets attention, but manufacturing is a shrinking share of the economy and the sector has been battling headwinds for years now.