1994 Fourth-Quarter and Annual Averages (Revised) Productivity and Costs

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Fourth-Quarter and Annual Averages, 1994

The Bureau of Labor Statistics of the U.S. Department of Labor today reported revised fourth-quarter seasonally-adjusted annual rates of productivity change--as measured by output per hour of all persons--and revised annual changes for the full year 1994. In the fourth quarter, productivity increased moderately in both the business and nonfarm business sectors. Percent changes in business and nonfarm business productivity were:

For the year 1994, productivity increases in both sectors were somewhat greater than in 1993. These productivity improvements, combined with modest increases in hourly compensation, led to the smallest increases in unit labor costs in three decades. Fourth-quarter productivity and related measures are summarized in table A and appear in detail in tables 1 through 5.

In the manufacturing sector, increases in productivity were:

Manufacturing productivity grew at a 3.1 percent annual rate in the fourth quarter as both output and hours increased at the fastest rates since the fourth quarter of 1987. The growth rates in productivity, output, and hours in durable goods manufacturing were more rapid than in nondurables (table A). On an annual basis, manufacturing productivity increased 4.9 percent, the largest yearly gain since 1987.

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. Output measures for manufacturing reflect independent indexes of industrial production prepared by the Board of Governors of the Federal Reserve System. See Technical Notes (page 7) for further information on data sources.

THIRD-TO-FOURTH QUARTER CHANGES, 1994

Business

Business sector productivity increased 1.7 percent in the fourth quarter of 1994. This gain reflected output growth of 5.4 percent and growth in the hours of all persons engaged in the sector of 3.6 percent (seasonally adjusted annual rates). During the third quarter of 1994, business productivity had increased 3.7 percent, output 4.5 percent, and hours 0.8 percent (table 1).

Hourly compensation increased at a 3.1 percent rate during the fourth quarter of 1994, compared with a 3.6 percent increase during 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 1.3 percent annual rate during the fourth quarter, compared with a 0.2 percent decrease one quarter earlier.

Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), rose at a 0.8 percent annual rate for persons in the business sector. This measure had been unchanged during the third quarter.

The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, increased at a 0.6 percent annual rate in the fourth quarter. During the third quarter, prices of the goods and services which comprise business output had increased at a 2.0 percent rate.

Nonfarm business

In the nonfarm business sector, productivity rose 1.7 percent in the fourth quarter. Output rose 5.3 percent, and hours of all persons--employees, proprietors, and unpaid family workers--rose 3.5 percent. During the third quarter, nonfarm productivity had increased 3.2 percent as output grew 4.3 percent and hours 1.1 percent (table 2).

Hourly compensation rose 3.4 percent in the fourth quarter, and real hourly compensation increased 1.2 percent when the increase in the CPI-U was taken into account. During the third quarter, hourly compensation had increased by 3.1 percent, and real hourly compensation dropped 0.4 percent. Unit labor costs rose 1.7 percent in the fourth quarter, compared with a 0.1 percent decrease during the third quarter.

The implicit price deflator for nonfarm business, reflecting the modest increase in unit labor costs and a 1.7 percent fall in unit nonlabor payments, rose only 0.5 percent in the fourth quarter, compared with a 2.3 percent increase one quarter earlier.

Manufacturing

Manufacturing productivity rose at a 3.1 percent seasonally adjusted annual rate in the fourth quarter of 1994, following an increase of 3.5 percent in the third quarter. Output rose 7.7 percent in the fourth quarter, the fifth consecutive quarter of increases exceeding 5 percent, and hours of all persons increased 4.5 percent. Both durable and nondurable goods industries experienced productivity increases in the fourth quarter, but the increases in durable manufacturing productivity and output were greater (tables 4 and 5).

Hourly compensation of all manufacturing workers increased 3.4 percent during the fourth quarter, 1.1 percent when the increase in consumer prices was taken into account. Unit labor costs rose at a 0.3 percent annual rate in the fourth quarter of 1994, after falling in the four previous quarters.

ANNUAL AVERAGE CHANGES, 1993-1994

Business

In the calendar year 1994, business productivity increased 2.3 percent, up from a 1.5 percent increase in 1993. Output grew 5.3 percent in 1994, and hours of all persons engaged in the sector increased 2.9 percent (table 1).

Hourly compensation increased 3.2 percent in 1994 (the smallest annual increase since 2.6 percent in 1955) and 3.6 percent in 1993. Real hourly compensation increased 0.6 percent in both 1994 and 1993.

Unit labor costs increased 0.8 percent during 1994, compared with a 2.0 percent increase a year earlier. These costs grew less in 1994 than in 1993 because of the smaller increase in hourly compensation and higher productivity growth.

Nonfarm business

Productivity increased 2.2 percent in the nonfarm business sector during 1994, as output rose 5.2 percent and hours of all persons increased 2.9 per- cent. In 1993, productivity had risen 1.5 percent, reflecting output and hours increases of 4.1 and 2.5 percent, respectively. Hourly compensation rose 3.1 percent in 1994. Although this was the smallest increase in hourly compensation since 1949 (when it rose 3.0 percent), it was just slightly less than the 3.3 percent rise in 1993. Real hourly compensation increased 0.5 percent, up from a 0.2 percent rise in 1993.

Unit labor costs in the nonfarm business sector grew only 0.9 percent in 1994 and 1.7 percent in 1993.

Manufacturing

Manufacturing productivity grew 4.9 percent in 1994, as output rose 6.1 percent and hours of all persons 1.2 percent. During 1993, productivity rose 3.2 percent, output rose 4.1 percent, and hours increased 0.8 percent. The increases in manufacturing productivity and output in 1994 were the largest since 1987. The increase in hours occurred because of increases in both employment and average weekly hours. Although employment growth was modest, it was the first annual increase since 1989. Manufacturing workers' average weekly hours in 1994 were at historically high levels.

Hourly compensation of manufacturing workers increased 2.8 percent during 1994, but only 0.2 percent after the increase in consumer prices is taken into account. Unit labor costs fell 2.0 percent in 1994, the first such decline since 1987, reflecting both faster productivity growth and a smaller gain in compensation per hour than in 1993.

Both durable and nondurable goods industries experienced productivity increases in 1994. The large gain among durable goods producers, 5.9 percent, reflected strong output growth and a slight increase in hours. In nondurable goods industries, productivity, output, and hours all grew modestly in 1994 (tables 4 and 5).

Revised measures

Productivity and cost measures for the fourth quarter and full year 1994 for business, nonfarm business, and manufacturing were revised to incorporate the most recent information, and were somewhat different from the preliminary results announced on February 7. Hourly compensation and the related real hourly compensation and unit labor cost measures were revised down in the business, nonfarm business and manufacturing sectors (table B).

Measures of real hourly compensation were revised for all sectors to reflect revisions to the Consumer Price Index for All Urban Consumers. These revisions to the CPI, which reflect updated seasonal adjustment factors, were released February 15 (USDL 95-52). Measures for 1990 forward were affected.