1995 Fourth Quarter and Annual Averages (Revised) Productivity and Costs

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Fourth Quarter and Annual Averages, 1995

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 1995. In the fourth quarter, productivity fell in both the business and nonfarm business sectors. Percent changes in business and nonfarm business productivity were:

For the year 1995, productivity increases in both sectors were somewhat greater than in 1994. 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 2.9 percent annual rate in the fourth quarter as output increased 1.3 percent but hours of all persons declined 1.5 percent (table A). On an annual basis, manufacturing productivity increased 3.7 percent, somewhat less than the 4.2 percent increase recorded in 1994. 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.

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 indexes of industrial production independently prepared by the Board of Governors of the Federal Reserve System. See Technical Notes for further information on data sources (page 8).

THIRD-TO-FOURTH QUARTER CHANGES, 1995 Business

Business sector productivity fell at a 0.5 percent annual rate in the fourth quarter of 1995 as hours of all persons engaged in the sector, which increased 1.3 percent, grew faster than output, which increased 0.7 percent. During the third quarter of 1995, business productivity had increased 1.6 percent as output rose 4.4 percent and hours increased 2.8 percent (table 1).

Hourly compensation increased at a 3.1 percent rate during the fourth quarter of 1995, compared with a 4.3 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 3.7 percent annual rate during the fourth quarter, compared with a 2.7 percent increase 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 0.7 percent annual rate for persons in the business sector. This measure had risen 2.3 percent during the third quarter.

The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, rose at a 0.8 percent annual rate in the fourth quarter. This was the smallest increase since the first quarter of 1967 and reflected a sharp 4.1 percent decline in unit nonlabor payments. During the third quarter, the implicit price deflator had increased 2.1 percent.

Nonfarm business

In the nonfarm business sector, productivity fell 1.0 percent at an annual rate in the fourth quarter as output rose 0.6 percent, and hours of all persons--employees, proprietors, and unpaid family workers--rose 1.6 percent. During the third quarter, nonfarm productivity had increased 1.7 percent as output grew 4.7 percent and hours 2.9 percent (table 2).

Hourly compensation rose 2.8 percent in the fourth quarter, and real hourly compensation increased 0.4 percent when the increase in the CPI-U was taken into account. During the third quarter, hourly compensation had increased by 4.3 percent, and real hourly compensation by 2.2 percent.

Unit labor costs rose 3.8 percent in the fourth quarter, up from a 2.5 percent increase during the third quarter. The implicit price deflator for nonfarm business rose only 0.7 percent in the fourth quarter, compared with a 1.8 percent increase one quarter earlier.

Manufacturing

Manufacturing productivity rose at a 2.9 percent seasonally adjusted annual rate in the fourth quarter of 1995, following an increase of 5.7 percent in the third quarter. Output in the fourth quarter rose 1.3 percent, and hours of all persons fell 1.5 percent. Both durable and nondurable goods industries experienced productivity increases in the fourth quarter, 3.9 and 1.5 percent, respectively. In durable goods manufacturing, output increased 3.6 percent in the fourth quarter while hours fell 0.4 percent. Both output and hours fell in nondurable goods manufacturing, 1.7 and 3.2 percent, respectively. Declines in hours have exceeded declines in output for three consecutive quarters in the nondurable sector (tables 4 and 5).

Hourly compensation of all manufacturing workers increased 2.5 percent during the fourth quarter, 0.1 percent when the increase in consumer prices was taken into account. Unit labor costs dropped 0.4 percent in the fourth quarter of 1995, the fifth consecutive decline in these costs and the eighth in the last nine quarters.

Percent change from previous year

ANNUAL AVERAGE CHANGES, 1994-1995

Business

In the calendar year 1995, business productivity increased 0.9 percent, somewhat more than the 0.7 percent increase which occurred in 1994 (table 1). Output grew 2.5 percent in 1995, and hours of all persons engaged in the sector increased 1.6 percent. The hours increase in the business sector reflects an employment increase of 2.1 percent and a decline in average weekly hours worked of 0.5 percent. This decline in average weekly hours was the first annual decline since 1991.

Hourly compensation increased 3.5 percent in 1995, more than the 2.2 percent increase in 1994. Real hourly compensation increased 0.6 percent in 1995 after registering declines of 0.4 percent in both 1993 and 1994.

Unit labor costs increased 2.6 percent during 1995, compared with a 1.4 percent increase a year earlier. The implicit price deflator grew 2.2 percent in both 1994 and 1995.

Nonfarm business

Productivity increased 1.1 percent in the nonfarm business sector during 1995, as output rose 2.7 percent and hours of all persons increased 1.6 per- cent. In 1994, productivity had risen only 0.5 percent, reflecting output and hours increases of 4.0 and 3.4 percent, respectively.

Hourly compensation rose 3.6 percent in 1995, compared with a 2.2 percent increase in 1994. Real hourly compensation increased 0.7 percent, after falling 0.4 percent in 1994 and 0.7 percent in 1993. Unit labor costs in the nonfarm business sector grew 2.5 percent in 1995, more than the 1.6 percent advance recorded in 1994. The implicit price deflator for the nonfarm business sector rose 2.2 percent in 1995, about the same as the 2.3 percent increase registered in 1994.

Manufacturing

Manufacturing productivity grew 3.7 percent in 1995, continuing a trend of annual increases that began in 1980. Output in the manufacturing sector increased 3.5 percent in 1995, and hours of all persons declined 0.2 percent. During 1994, productivity rose 4.2 percent, output 6.5 percent, and hours 2.2 percent. Durable goods manufacturing productivity increased 4.6 percent in 1995 as output rose 5.5 percent and hours rose 0.9 percent. Nondurable goods productivity increased 2.9 percent last year as output rose 1.2 percent and hours of all persons fell 1.6 percent.

Hourly compensation of manufacturing workers increased 3.1 percent in 1995, but only 0.2 percent after the increase in consumer prices was taken into account. In 1994, hourly compensation had increased 2.8 percent, and real hourly compensation rose 0.3 percent. Unit labor costs fell 0.6 percent in 1995, compared with a 1.3 percent decline in 1994 (tables B, 3, 4, and 5).

Fourth-quarter and annual measures for nonfinancial corporations

Fourth-quarter and annual 1995 measures of productivity and costs also were announced today for the nonfinancial corporate sector (tables C, D, and 6). Output per all-employee hour rose 2.3 percent from the third to the fourth quarter of 1995 as output increased 3.8 percent and employee hours rose 1.5 percent. In the third quarter, productivity had risen 5.7 percent as output rose 7.8 percent and all-employee hours rose 2.0 percent (seasonally adjusted annual rates). 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 3.2 percent in the fourth quarter, and real hourly compensation rose 0.8 percent. Unit labor costs rose 0.9 percent in the fourth quarter after falling 1.5 percent one quarter earlier. The implicit price deflator for nonfinancial corporate output edged up 0.5 percent during the fourth quarter, less than the 1.1 percent increase in the third quarter of 1995.

Productivity was 1.2 percent higher in 1995 than in 1994 in nonfinancial corporations, somewhat less than the 1.4 percent increase posted one year earlier. The 1995 increase reflects increases in output and employee hours of 3.3 percent and 2.1 percent, respectively. In 1994, output increased 5.5 percent and labor hours 4.1 percent.

The 1995 increase in hourly compensation was 3.2 percent, up from the 1.9 percent increase of 1994. Total unit costs in 1995 rose 1.7 percent, reflecting an increase of 2.0 percent in unit labor costs and a 0.7 percent rise in unit nonlabor costs. Unit profits rose at a 2.1 percent annual rate in 1995, less than the 16.2 percent increase registered in 1994.

Revised Measures

Productivity and cost measures for the fourth quarter and full year 1995 for business, nonfarm business, and manufacturing were revised to incorporate the most recent information and were somewhat different from the preliminary results announced on March 6. Fourth-quarter productivity and output were revised downward in the business and nonfarm business sectors (table E).