Profits and productivity rise in America, while workers get less and consumers pay more

It may have gotten lost due to the release of the July jobs report on Friday, but the day before, productivity numbers were released for Q2 2026, and that measure keeps on rising.

Nonfarm business sector labor productivity increased 1.4 percent in the second quarter of 2026, the U.S. Bureau of Labor Statistics reported today, as output increased 1.7 percent and hours worked increased 0.3 percent. (All quarterly percent changes in this release are seasonally adjusted annualized rates.) From the same quarter a year ago, nonfarm business sector labor productivity increased 2.2 percent in the second quarter of 2026.

Unit labor costs in the nonfarm business sector increased 1.3 percent in the second quarter of 2026, reflecting a 2.7-percent increase in hourly compensation and a 1.4-percent increase in productivity. Unit labor costs increased 1.4 percent over the last four quarters.

But I’ll remind you that these are unit labor costs before inflation, and the same report says prices rose at an annualized rate of nearly 6% for Q2. When you look at it that way, workers were taking home less, and it was relatively cheap for companies to make products. So guess who takes the gains?

BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs and increases in productivity tend to reduce them. Real hourly compensation, which takes into account consumer prices, decreased 3.1 percent in the second quarter of 2026, and decreased 0.1 percent over the last four quarters. The labor share, which is the percentage of output that accrues to workers in the form of compensation, was 52.9 percent in the second quarter of 2026, the lowest level in the series which begins in the first quarter of 1947.

Now combine that with what we saw in the July jobs report, which not only showed fewer jobs for that month, and May and June being revised lower by 103,000, but also had year-over-year wage growth drop to a 5-year low.

This is a continuation of a trend where businesses have been squeezing more output without having to add as many workers in recent years, as the BLS illustrates with these charts.

Later this month, the Bureau of Economic Analysis will release their first look at corporate profits for the inflation-wracked April-June period. If the productivity and jobs numbers are indicative, I bet those profit numbers will show a big increase from Q1, and accelerate what has already been an impressive (obscene?) runup in those numbers since 2020.

We don't often ID these higher profits as Robin Hood in reverse, where rich owners take the gains from workers, give smaller raises, and get all the benefits of higher prices. And that's before we even mention the tariff refunds that businesses are now getting, without those businesses reducing prices for everyday workers and consumers.

Nice "economy", isn't it?