1995 Third 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.

Third Quarter 1995

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

1.2 percent in the business sector, and 1.4 percent in the nonfarm business sector.

In both the business and the nonfarm business sectors, productivity increases in the third quarter were less than half the second-quarter increases.

In manufacturing, revised productivity increases in the third quarter were:

5.7 percent in manufacturing, 6.6 percent in durable goods manufacturing, and 4.8 percent in nondurable goods manufacturing.

The third-quarter productivity increase in manufacturing occurred as output rose at a 2.6 percent rate and hours fell 2.9 percent. Output and hours in manufacturing, which includes about 19 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.

The data sources and methods used in the preparation of the manufacturing series differ from those used in preparing the business and nonfarm business series and these measures are not directly comparable. 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 9).

Business

From the second quarter to the third quarter of 1995, business sector productivity increased at a 1.2 percent annual rate. As revised, output rose 4.1 percent, and hours of all persons engaged in the sector increased 2.8 percent (seasonally adjusted annual rates). During the second quarter of 1995, productivity had increased 3.0 percent, as output rose 0.3 percent and hours fell 2.5 percent (table 1).

Hourly compensation increased 3.9 percent during the third quarter of 1995, down from a 5.6 percent rise in the second quarter. This measure includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Unit labor costs rose 2.7 percent in the third quarter, just slightly more than the 2.5 percent increase posted one quarter earlier.

Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), rose 1.9 percent in the third quarter and 2.1 percent in the second quarter of 1995.

The implicit price deflator for the business sector, which reflects changes in both unit labor costs and unit nonlabor payments, increased at a 2.6 percent annual rate in the third quarter of 1995, compared with a 2.1 percent increase during the second quarter.

Nonfarm business

Productivity rose 1.4 percent in the nonfarm business sector during the third quarter of 1995 as output rose 4.4 percent and hours of all persons increased 2.9 percent. During the second quarter of 1995, productivity had increased 3.0 percent in the nonfarm business sector, reflecting a gain of 0.5 percent in output coupled with a 2.4 percent decline in hours (table 2).

Hourly compensation increased at a 3.9 percent annual rate in the third quarter, compared with a 5.4 percent increase one quarter earlier. When the rise in the CPI-U is taken into account, real hourly compensation rose at a 1.8 percent annual rate in the third quarter. Real hourly compensation has now posted increases in four consecutive quarters. Unit labor costs increased 2.4 percent in the third quarter of 1995 and 2.3 percent in the second quarter.

The implicit price deflator for nonfarm business output rose 2.3 percent in the third quarter, compared with a 1.9 percent rise one quarter earlier.

Manufacturing

Productivity increased 5.7 percent in manufacturing in the third quarter of 1995, as output rose 2.6 percent and hours of all persons fell 2.9 percent (seasonally adjusted annual rates). Manufacturing productivity has increased in every quarter since the first quarter of 1991 (when it declined 0.4 percent). In the durable goods industries, productivity grew 6.6 percent in the third quarter as output rose 5.1 percent and hours fell 1.5 percent. In the nondurable goods industries, productivity grew 4.8 percent as both output and hours dropped--0.3 and 4.9 percent, respectively (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers increased 4.0 percent during the third quarter and 3.5 percent during the second quarter (seasonally adjusted annual rates). Real hourly compensation increased 1.9 percent when the increase in the CPI-U is taken into account. This increase in real hourly compensation was the largest since a similar increase in the first quarter of 1992. During the second quarter, real hourly compensation rose only 0.1 percent.

Unit labor costs fell at a 1.6 percent annual rate in the third quarter of 1995 as the 5.7 percent productivity increase in the manufacturing sector exceeded the 4.0 percent increase in hourly compensation. These costs fell 0.5 percent in the second quarter of 1995 and have fallen in 7 of the last 8 quarters. In durable goods industries, unit labor costs fell 2.5 percent in the third quarter of 1995 and have fallen for 8 consecutive quarters. A 1.1 percent decrease in unit labor costs was recorded in nondurable goods industries in both the second and third quarters.

Nonfinancial Corporations

Third-quarter 1995 measures of productivity and costs also were announced today for nonfinancial corporations (tables B and 6). Output per all-employee hour rose at a 5.7 percent annual rate, compared with a 3.7 percent increase during the second quarter (as revised). Output increased 7.8 percent in the third quarter of 1995, while hours of all employees increased 2.0 percent, at annual rates. The third-quarter productivity and output increases in nonfinancial corporations were the highest since the first quarter of 1986, when they both increased at a 9.3 percent annual rate. The sector includes all corporations doing business in the United States, except those classified as depository institutions, nondepository institutions, security and commodity brokers, insurance carriers, regulated investment offices, small business investment offices, and real estate investment trusts.

Hourly compensation increased 4.1 percent in the third quarter; it had risen 5.6 percent in the second quarter. When the rise in the CPI-U is taken into account, real hourly compensation increased 2.0 percent in the third quarter--about the same as the 2.1 percent increase in the second quarter of 1995.

Unit labor costs for nonfinancial corporations fell 1.5 percent in the third quarter, after increasing 1.9 percent in the previous quarter. Unit nonlabor costs fell 5.0 percent in the third quarter, and unit profits rose at a 40.9 percent annual rate. This was the first increase in unit profits in calendar year 1995. The implicit price deflator for the output of nonfinancial corporations rose 1.1 percent in the third quarter, down from the 2.2 percent increase posted one quarter earlier.

Revised Measures

Current and previous measures for the third quarter of 1995 for the business, nonfarm business, and manufacturing sectors are compared in table C. The quarterly movements differ from those reported on November 7. These differences are due to both new information and changes in the way the measures are constructed. (See new methodologies and data on page 6.)

New methodologies and data

The Bureau of Labor Statistics has switched to annual-weighted output indexes for computations underlying its Productivity and Costs news releases. This change parallels the changes made by the Bureau of Economic Analysis, U.S. Department of Commerce, on January 19, 1996, to replace its constant dollar series as the featured measure of real gross domestic product (GDP) with a chain-type, annual-weighted index. Annual and quarterly measures of output for the business, nonfarm business, and nonfinancial corporate sectors were computed by BEA using the same conventions used to compute GDP. For its historical annual data on manufacturing output, BLS is now using the annual- weighted measure of "sectoral output" developed some years ago for its manufacturing multifactor productivity measures. This output series replaces the series on constant dollar gross product originating previously used. Quarterly data on manufacturing output, and annual data for the most recent one or two years, continue to be based on movements in the index of industrial production prepared monthly by the Board of Governors of the Federal Reserve System.

In addition, BLS business and nonfarm business output measures 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 value 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. The BLS measure will now be based on the product side rather than the income side. It has been determined that using the income side definition resulted in larger revisions of BLS productivity data between the preliminary and revised news releases than a product side definition would have.

The comprehensive revisions made to the National Income and Product Accounts (NIPAs) by the Bureau of Economic Analysis on January 19, 1996, are reflected in the data in this news release. As a result of these comprehensive revisions, the productivity and cost measures included in this release incorporate new information on current dollar output levels, employee compensation, and employment trends. Appendix tables 1, 2, and 6 show revised annual productivity and related indexes from 1959 forward for the business, nonfarm business, and nonfinancial corporate sectors. Currently, there is no projected date for the availability of productivity and costs measures for the business and nonfarm business sectors for the 1947-58 period. For further information about the switch to annual-weighted indexes and the switch to the product side, see Edwin Dean, Michael Harper, and Phyllis Flohr Otto, "Improvements to the quarterly productivity measures," Monthly Labor Review, October 1995, pp. 27-32. Appendix tables 3-5 show revised annual productivity and related indexes from 1949 forward for the manufacturing sectors. For a discussion of the BLS manufacturing "sectoral output" measures, see William Gullickson, "Measurement of productivity growth in U.S. manufacturing," Monthly Labor Review, July 1995, pp. 13-28.

Quarterly measures of output from 1991 forward for the manufacturing sectors, as well as the annual change for the year 1994, also incorporate revisions to the Federal Reserve Board's index of industrial production which were announced on November 30, 1995. The indexes of industrial production were revised back to January 1991 to incorporate additional or updated monthly source data and new seasonal factors. (See Federal Reserve Statistical Release G.17 (419).)

In addition, the productivity and cost measures were revised to reflect the results of the 1994 Hours at Work Survey (HWS), which are now available. This survey is used to adjust the number of hours for which private nonfarm employees are paid, as reported in the BLS Current Establishment Survey, to hours at the workplace. For 1994, these new results show that hours of all persons increased slightly more than had originally been reported. In the nonfarm business sector, BLS estimates that hours were about 0.1 percentage point higher due to the incorporation of the 1994 survey.

The long-term rates of productivity change have been affected by all of the above revisions. The compound annual rate of growth of business output per hour for 1979-94 is 1.2 percent (unchanged from the previous measure). For the same period, output per hour grew at a 1.0 percent rate for nonfarm business (down from 1.1 percent) and at a 1.8 percent rate for nonfinancial corporations (up from 1.7 percent). In the manufacturing sector, output per hour grew at a 2.8 percent rate (up from 2.5 percent).