US unit labor costs in the nonfarm business sector fell at a 0.7% annualized rate in the third quarter of 2026, the first decline since the second quarter of 2025, according to the Labor Department's Bureau of Labor Statistics. Economists had expected a 0.6% increase. Nonfarm labor productivity, which measures hourly output per worker, rose 3.6%, beating expectations for a 2.8% gain and accelerating from an upwardly revised 2.1% increase in the second quarter. Hourly compensation increased 2.9%, while output rose 3.7% and hours worked advanced 0.1%. Year over year, productivity increased 2.1% and unit labor costs rose 2.4%. Manufacturing unit labor costs increased 2.7%, with hourly compensation up 3% and productivity rising 0.3%. Durable-goods productivity gained 2.2%, while nondurable-goods productivity fell 1.7%. The data followed a moderate third-quarter increase in the Employment Cost Index and supported arguments that the labor market was not a source of inflation. Economists and policymakers are watching whether increased artificial-intelligence spending translates into sustained productivity gains. The Federal Reserve kept its benchmark overnight interest rate at 3.75%-4.00% the previous week while saying inflation remained elevated, and economists expect borrowing costs to rise in December.