1995 Third Quarter (Preliminary) 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.

Third Quarter 1995

The Bureau of Labor Statistics of the U.S. Department of Labor today reported preliminary productivity data-as measured by output per hour of all persons-for the third quarter of 1995. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were:

2.1 percent in the business sector, and 2.0 percent in the nonfarm business sector.

In both the business and the nonfarm business sectors, productivity increases in the third quarter were smaller than those recorded in the second quarter (as revised).

In manufacturing, productivity increases in the third quarter were:

6.2 percent in manufacturing, 8.1 percent in durable goods manufacturing, and 3.0 percent in nondurable goods manufacturing.

The 6.2 percent rise in manufacturing productivity came primarily from the durable goods sector, where productivity rose 8.1 percent. In the slightly- smaller nondurable goods sector, productivity rose 3.0 percent in the third quarter. Output and hours in manufacturing, which includes nearly 20 percent of U.S. business sector employment, tend to vary more from quarter to quarter than data for the more aggregate business and nonfarm business sectors. Third- quarter measures are summarized in table A and appear in detail in tables 1 through 5.

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 8).

Business

From the second quarter to the third quarter of 1995, business sector productivity increased at a 2.1 percent annual rate. Output rose 4.9 percent, and hours of all persons engaged in the sector increased 2.8 percent (seasonally adjusted annual rates). The increase in hours reflected 1.4 percent increases in both employment and average weekly hours. This was the first increase in average weekly hours in 1995; they had fallen 2.8 percent in the second quarter and 0.5 percent in the first quarter. After revisions, second-quarter productivity in the business sector rose 4.6 percent, as output increased 2.0 percent, and hours of all persons fell 2.5 percent (tables B and 1).

Hourly compensation increased 3.2 percent during the third quarter of 1995, compared with a 3.8 percent rise in the second 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 1.1 percent annual rate during the third quarter. During the previous quarter, these costs had fallen 0.8 percent.

Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), increased 1.1 percent in the third quarter, and 0.4 percent in the second quarter of 1995.

The implicit price deflator for the business sector, which reflects changes in unit labor costs and unit nonlabor payments, increased at a 0.2 percent annual rate in the third quarter, down from a 1.3 percent increase during the second quarter of 1995.

Nonfarm business

Productivity rose 2.0 percent in the nonfarm business sector during the third quarter of 1995 as output rose 4.9 percent and hours of all persons increased 2.9 percent. During the second quarter of 1995, productivity had risen 4.9 percent (as revised) in the nonfarm business sector, reflecting a gain of 2.4 percent in output and a decline of 2.4 percent in hours (table 2).

Hourly compensation increased at a 3.1 percent annual rate in the third quarter, compared with a 3.7 percent increase one quarter earlier. When the rise in the CPI-U is taken into account, real hourly compensation rose at a 1.0 percent annual rate in the third quarter. Unit labor costs increased 1.1 percent during the July-September period, after falling 1.2 percent during the second quarter of 1995.

The implicit price deflator for nonfarm business output fell 0.1 percent in the third quarter, compared with a 1.2 percent increase one quarter earlier.

Manufacturing

Productivity increased 6.2 percent in manufacturing in the third quarter of 1995, as output rose 3.0 percent and hours of all persons fell 3.0 percent (seasonally adjusted annual rates). This increase in manufacturing productivity was the largest since a 10.6 percent increase was recorded in the second quarter of 1987. In the durable goods sector, third-quarter productivity rose 8.1 percent as output increased 6.4 percent and hours fell 1.6 percent. Although productivity increased 3.0 percent in the nondurable goods sector, output and hours both fell, at annual rates of 2.1 and 4.9 percent, respectively. In the second quarter of 1995, manufacturing productivity had risen 2.7 percent as both output and hours declined, 3.4 and 5.9 percent, respectively (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers increased 3.7 percent during the third quarter, up from the 0.5 percent increase recorded in the second quarter (seasonally adjusted annual rates). Real hourly compensation rose 1.7 percent in the third quarter when the increase in the CPI-U is taken into account. In the second quarter of 1995, real hourly compensation of manufacturing workers had fallen 2.8 percent.

Unit labor costs fell at a 2.3 percent annual rate in the third quarter of 1995. These costs had decreased 2.2 percent during the second quarter of 1995 and have now declined in eight of the last 11 quarters.

Revised Measures

Current and previous measures for the second quarter of 1995 for the business, nonfarm business, and manufacturing sectors are compared in table B. The quarterly movements differ somewhat from those reported on September 7 based on information then available.

Revised measures: Nonfinancial Corporations

Productivity and cost measures for the second quarter for nonfinancial corporations, which were revised to incorporate the most recent information, were somewhat different from the preliminary results announced on September 7 (table C).

Second quarter 1995

Upcoming Changes in Productivity and Costs Measures

The Bureau of Labor Statistics plans to switch to annually-weighted output indexes for computations underlying its Productivity and Costs news releases early in 1996. This change will parallel the changes being made by the Bureau of Economic Analysis, U.S. Department of Commerce, to replace its fixed- weighted index as the featured measure of real gross domestic product (GDP) with a chain-type, annual-weighted index. BEA will compute quarterly data for business and nonfarm business output for BLS using the same conventions it uses to compute quarterly GDP. Starting with its chain-type, annual-weighted measure of real GDP, BEA will remove those GDP components that BLS excludes from its definitions of the business and nonfarm business sectors.

In addition, future BLS business and nonfarm business output measures will no longer exclude the statistical discrepancy-the measure of the difference between GDP as measured on the product side and on the income side. The product side adds up the values of goods and services produced while the income side adds up the disposition of the income generated by production in the form of wages, salaries, supplements, profits, net interest, and business taxes. Although conceptually equal, the two sides differ because they are measured using different data sources. It has been determined that the income side definition which BLS has been using has led to larger revisions of BLS productivity data between the preliminary and revised press releases than would a product side definition. This is because BEA's data on the income side are incomplete at the time that the GDP statistics are first issued each quarter. BLS has, in effect, used a product side measure of output growth in its first press release of each quarter, and then an income side definition at the time of the second release.

For its historical annual data on manufacturing output, BLS will use the annually-weighted measure of "sectoral output" it developed some years ago as part of its manufacturing multifactor productivity data set. This output series will replace the series on constant dollar gross product originating currently used. Quarterly data on manufacturing output, and annual data for the most recent one or two years, will continue to be based on movements in the index of industrial production prepared monthly by the Board of Governors of the Federal Reserve System.

The output and productivity data under the new concepts are currently being updated and revised to incorporate new source data. However, BLS has produced indexes for some sectors based on currently-available source data. The following table shows results for the nonfarm business sector.

Output Productivity

(a) (b) (c) (d) (e)

Compound annual rates of change

A statement containing information about these measures may be obtained from the Division of Productivity Research (202-606-5606). For a discussion of the manufacturing "sectoral output" measure mentioned above, see William Gullickson, "Measurement of productivity growth in U.S. manufacturing," Monthly Labor Review, July 1995, pp. 13-28.

BEA has announced a schedule of release dates for the comprehensive revision of the National Income and Product Accounts. Revised estimates for 1959-92 are scheduled for release on November 21, 1995. Revised third-quarter 1995 data, combined with the release of revised estimates for 1993 through the second quarter of 1995, are scheduled for release on December 15. As soon as possible after that date, BLS will issue revised quarterly productivity and costs measures, back to 1959, based on the new concepts and data. The revised productivity and cost measures also will incorporate information from the 1994 Hours at Work Survey and will feature a 1992 base year for the indexes.