1996 Fourth Quarter and Annual Averages (Revised) Productivity and Costs

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Fourth Quarter and Annual Averages, 1996

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 1996. In the fourth quarter, productivity rose in both the business and nonfarm business sectors. Percent changes in business and nonfarm business productivity were:

For the year 1996, productivity increases in both sectors were the largest since 1992. Fourth-quarter productivity and related measures are summarized in table A and appear in detail in tables 1 through 5; the preliminary and revised fourth-quarter and annual measures appear in table C.

In the manufacturing sector, increases in productivity were:

Manufacturing productivity rose at a 4.4 percent annual rate in the fourth quarter as output increased 4.5 percent but hours of all persons grew only 0.1 percent (table A). On an annual basis, manufacturing productivity rose 3.9 percent in 1996, the largest increase in a decade. Output and hours in manufacturing, which includes about 18 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.

THIRD-TO-FOURTH QUARTER CHANGES, 1996 Business

Business sector productivity rose at a 1.2 percent annual rate in the fourth quarter of 1996 as output increased 4.8 percent and hours of all persons engaged in the sector increased 3.6 percent. The fourth-quarter increase in labor productivity was larger than the 0.3 percent gain posted during the third quarter of 1996, when output rose 2.2 percent and hours of all persons grew 1.9 percent (table 1).

Hourly compensation increased 3.7 percent during the fourth quarter of 1996, about the same as the 3.8 percent growth 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 both hourly compensation and productivity, increased at a 2.5 percent annual rate during the fourth quarter, a slower rate of growth than the 3.4 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 at a 0.4 percent annual rate for persons in the business sector. This measure had risen 1.1 percent during the third quarter.

The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, rose 1.1 percent in the fourth quarter. This increase was down slightly from the 1.3 percent gain in the third quarter of 1996.

Nonfarm business

In the nonfarm business sector, productivity rose 1.1 percent at an annual rate in the fourth quarter as output rose 5.0 percent, and hours of all persons--employees, proprietors, and unpaid family workers--rose 3.9 percent. During the third quarter, nonfarm productivity had remained unchanged as output and hours both grew 1.9 percent (table 2).

Hourly compensation rose 3.6 percent in the fourth quarter, slightly more than the 3.3 percent increase in the third quarter. Real hourly compensation in the fourth quarter increased 0.2 percent when the increase in the CPI-U was taken into account. During the third quarter, real hourly compensation rose 0.7 percent.

Unit labor costs rose 2.5 percent in the fourth quarter, down from a 3.3 percent increase in the third quarter of 1996. The implicit price deflator for nonfarm business rose 1.2 percent in both the third and fourth quarters.

Manufacturing

Manufacturing productivity rose at a 4.4 percent seasonally adjusted annual rate in the fourth quarter of 1996, following an increase of 5.9 percent in the third quarter. Output in the fourth quarter rose 4.5 percent, and hours of all persons increased 0.1 percent. In the third quarter, output grew 5.0 percent but hours dropped 0.9 percent (table 3). Both durable and nondurable goods industries experienced productivity increases in the fourth quarter, 3.4 and 5.7 percent, respectively. In durable goods manufacturing, output increased 3.3 percent in the fourth quarter while hours fell 0.1 percent. Output and hours growth in nondurable goods manufacturing were stronger, 6.2 and 0.4 percent, respectively (tables 4 and 5).

Hourly compensation of all manufacturing workers increased 2.8 percent during the fourth quarter, down from the 4.6 percent increase in the previous quarter. When the increase in consumer prices was taken into account, real hourly compensation fell 0.6 percent in the fourth quarter after rising 1.9 percent in the third quarter. Unit labor costs dropped 1.6 percent in the fourth quarter of 1996 and 1.2 percent in the third quarter. These costs have declined in four of the last six quarters.

ANNUAL AVERAGE CHANGES, 1995-1996

Business

In calendar year 1996, business productivity increased 1.0 percent, the largest gain since the 3.4 percent increase posted in 1992 (table 1). Output grew 3.0 percent in 1996, and hours of all persons engaged in the sector increased 2.0 percent. In the previous year, productivity had risen only 0.1 percent as output grew 2.5 percent and hours of all persons increased 2.4 percent.

Hourly compensation increased 3.8 percent in 1996, more than the 3.1 percent increase in 1995. The 1996 increase was the largest since 1992, when hourly compensation rose 5.2 percent. Real hourly compensation increased 0.8 percent in 1996 and 0.3 percent in 1995.

Unit labor costs increased 2.8 percent during 1996, just slightly less than the 3.0 percent increase posted a year earlier. The implicit price deflator, reflecting both the increase in unit labor costs and the 0.3 percent decline in unit nonlabor payments in 1996, rose 1.6 percent. The implicit deflator had risen 2.3 percent in 1995.

Nonfarm business

Productivity increased 0.7 percent in the nonfarm business sector during 1996, as output rose 2.9 percent and hours of all persons increased 2.2 per cent. The 1996 increase in productivity was higher than the 0.3 percent increase posted in 1995, when output rose 2.7 percent and hours of all persons grew 2.4 percent.

Hourly compensation grew more in 1996, 3.6 percent, than it had in 1995, 3.2 percent. Real hourly compensation increased 0.7 percent, compared with 0.3 percent in 1995. The 1996 increase in real hourly compensation was the largest since a 2.1 percent rise in 1992.

Unit labor costs in the nonfarm business sector grew 2.9 percent in both 1995 and 1996. The implicit price deflator, which reflects nonlabor payments as well as labor costs, rose 1.5 percent in 1996 and 2.2 percent in 1995.

Manufacturing

Manufacturing productivity grew 3.9 percent in 1996, continuing a trend of annual increases that began in 1980. Output in the manufacturing sector increased 2.8 percent in 1996, and hours of all persons declined 1.0 percent. During 1995, productivity rose 3.4 percent, output 3.5 percent, and hours 0.1 percent. Although productivity increased in both the durable and nondurable goods sectors in 1996, durable goods manufacturers had a larger increase (4.9 percent) than nondurable goods manufacturers (3.0 percent). Trends in output and hours also were different in the two subsectors. Output and hours rose 5.1 and 0.2 percent, respectively, in the durable goods sector in 1996. In the nondurable goods sector, output rose 0.1 percent while hours dropped 2.8 percent (tables B, 3, 4, and 5).

The hourly compensation of manufacturing workers increased 3.5 percent in 1996; however, the rise was only 0.5 percent after the increase in consumer prices was taken into account. In 1995, hourly compensation had increased 3.7 percent, and real hourly compensation rose 0.9 percent. Compensation growth differed between durable and nondurable goods producers in 1996. Hourly compensation in durable goods rose 2.8 percent in 1996, and real hourly compensation dropped 0.1 percent. In nondurable goods industries, hourly compensation rose 4.3 percent, and real hourly compensation rose 1.3 percent.

Unit labor costs in the manufacturing sector fell 0.3 percent in 1996 after rising 0.3 percent in 1995. In durable goods, unit labor costs fell 1.9 percent in 1996 and have fallen every year since 1991, when they rose 2.9 percent. Unit labor costs in nondurable goods rose 1.3 percent in 1996, about the same as the 1.1 percent rise in 1995.

Revised Measures

Productivity and cost measures for the fourth quarter and full year 1996 for business, nonfarm business, and manufacturing were revised to incorporate the most recent information. In the business and nonfarm business sectors, productivity and output measures for the fourth quarter are lower than those reported on February 11 based on information available at that time. In manufacturing, productivity and output measures are higher than those announced on February 11. In all sectors, quarterly measures of real hourly compensation were revised back to the first quarter of 1992 to incorporate the annual recalculation of seasonal factors for the Consumer Price Index (table C).