1994 Second Quarter (Revised) Productivity and Costs

Historical release narrative reproduced from the official public-domain source. Statistical tables, standard technical appendices, administrative material and attendance rosters are omitted; formatting is adapted for reading. Figures retain the release's historical context and may have been revised. Consult the linked source for the complete document.

Second Quarter 1994 Business, Nonfarm Business, Manufacturing, and Nonfinancial Corporations

The Bureau of Labor Statistics of the U.S. Department of Labor today reported revised productivity datajas measured by output per hour of all personsjfor the second quarter of 1994. The revised seasonally-adjusted annual rates of productivity change in the second quarter were:

-2.7 percent in the business sector, and -2.5 percent in the nonfarm business sector.

In the second, quarter output growth slowed while hours rose more rapidly than in the first quarter in both sectors; because hours increased more rapidly than output, productivity declined.

In manufacturing, productivity changes in the second quarter were:

4.5 percent in manufacturing, 3.4 percent in durable goods manufacturing, and 6.1 percent in nondurable goods manufacturing.

The productivity advance in manufacturing reflects a strong output gain in the nondurable goods industries. Output and hours in manufacturing, which includes about 20 percent of U.S. business-sector employment, tend to fluctuate more from quarter to quarter than in the business and nonfarm business sectors. Second-quarter measures are summarized in table A and appear in detail in tables 1 through 5; the differences between these measures and the preliminary second-quarter figures issued on August 9 are shown in table C.

Output measures for business and nonfarm business are based on measures of gross domestic product prepared by the Bureau of Economic Analysis of the U.S. Department of Commerce. Quarterly output measures for manufacturing reflect independent indexes of industrial production prepared by the Board of Governors of the

Federal Reserve System. See Technical Notes for further information on data sources (page 7).

In nonfinancial corporations, productivity fell 1.3 percent in the second quarter, as output rose 4.8 percent and hours increased 6.2 percent (tables B and 6).

Business

From the first quarter to the second quarter of 1994, business sector productivity decreased at a 2.7 percent annual rate, the largest decline since 1981 (when a 7.0 percent decline occurred in the fourth quarter). In the second quarter of 1994, output rose 2.9 percent and hours of all persons engaged in the sector increased 5.8 percent (seasonally adjusted annual rates). During the first quarter of 1994, productivity had risen 2.9 percent, as output and hours rose 5.5 and 2.6 percent, respectively (table 1).

Hourly compensation increased 0.3 percent during the second quarter of 1994, compared with a 6.2 percent rise in the first quarter. The second-quarter increase was the smallest since 1960 (when a 0.9 percent decline occurred in the third quarter). This measure includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Unit labor costs, which reflect changes in hourly compensation and productivity, increased at a 3.2 percent annual rate during the second quarter, nearly matching the 3.3 percent increase during the previous quarter.

Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), declined at a 2.4 percent annual rate in the second quarter; it had risen 4.0 percent in the first quarter of 1994. The second-quarter decline was the greatest in 5 years.

The implicit price deflator for the business sector, which reflects changes in unit labor costs and unit nonlabor payments, increased 3.5 percent in the second quarter, compared with a 1.5 percent increase during the first quarter of 1994.

Nonfarm business

Productivity fell 2.5 percent in the nonfarm business sector during the second quarter of 1994 as output rose 2.7 percent and hours of all persons increased 5.4 percent. This was the largest productivity decline since 1989 (when it declined 3.7 percent in the first quarter), and the gain in hours was the largest since the second quarter of 1988 (when they rose 6.1 percent). During the first quarter of 1994, productivity had increased 2.9 percent in the nonfarm business sector, reflecting gains of 5.2 percent in output and 2.3 percent in hours (table 2).

Hourly compensation increased at a 0.8 percent annual rate in the second quarter, compared with a 6.1 percent increase one quarter earlier. The second-quarter increase was the smallest since 1988 (when it rose 0.6 percent in the first quarter). When the rise in the CPI-U is taken into account, real hourly compensation fell 1.9 percent in the second quarter. Unit labor costs rose 3.4 percent, compared with a 3.1 percent rise during the first quarter of 1994.

The implicit price deflator for nonfarm business output rose 4.4 percent in the second quarter, compared with a 1.2 percent rise one quarter earlier.

Manufacturing

Productivity increased at a 4.5 percent seasonally adjusted annual rate in manufacturing in the second quarter of 1994, as output rose 6.1 percent and hours of all persons increased 1.5 percent (seasonally adjusted annual rates). Productivity grew strongly in nondurable goods industries while posting a smaller gain among durable goods producers (tables 4 and 5).

Hourly compensation of all manufacturing workers declined 1.6 percent during the second quarter, compared with a 3.8 percent gain during the January-March period. The second-quarter decline was the largest in this series (which begins with data for 1977). Real hourly compensation fell 4.2 percent in the second quarter when the increase in consumer prices is taken into account. During the first quarter, real hourly compensation had gone up 1.7 percent (seasonally adjusted annual rates).

Unit labor costs fell at a 5.8 percent annual rate in the second quarter of 1994, the third decline in succession. These costs had decreased 2.8 percent during the first quarter of 1994. The index of unit labor costs in the second quarter (at 111.0) was at its lowest point since 1990 (when it reached 110.2 in the third quarter).

Nonfinancial corporations

Preliminary second-quarter 1994 measures of productivity and costs also were announced today for nonfinancial corporations (tables B and 6). Productivity declined 1.3 percent in the second quarter, as output rose 4.8 percent and hours increased 6.2 percent (seasonally adjusted annual rates). The increase in hours was the largest since 1984 (when they rose 7.5 percent in the first quarter). In the first quarter of 1994, productivity had increased 3.3 percent. Nonfinancial corporations include all corporations doing business in the United States, except banks, stock and commodity brokers, and finance and insurance agencies.

Hourly compensation did not increase in the second quarter. In real terms, when the rise in the CPI-U is taken into account, real hourly compensation declined 2.7 percent (table 6). This was the largest decrease since 1989 (when it fell 5.0 percent in the second quarter).

Percent change from preceding year

Unit labor costs for nonfinancial corporations increased 1.4 percent in the second quarter, compared with a 1.8 percent rise in the first quarter of 1994. Unit nonlabor costs fell 5.0 percent, and unit profits rose 22.1 percent. During the first quarter, unit nonlabor costs had increased 6.6 percent while unit profits fell 4.9 percent (annual rates). The implicit price deflator for nonfinancial corporate output rose 1.8 percent in the second quarter.

Revised Measures

Current and previous measures for the second quarter of 1994 for the business, nonfarm business, and manufacturing sectors are compared in table C. The quarterly movements differ from those reported on August 9 based on information then available. In the business and nonfarm business sectors, the growth in output (which is based on information from the national income and product accounts prepared by the U.S. Department of Commerce) was revised downward. On the other hand, manufacturing output (which is based on information from the Federal Reserve Board), was revised upward.