1997 Second 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.

Second Quarter 1997

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 second quarter of 1997. The revised seasonally- adjusted annual rates of productivity change in the second quarter were:

2.7 percent in the business sector, and 2.7 percent in the nonfarm business sector.

In both sectors, productivity growth was stronger than in the first quarter of 1997, when output per hour increased at annual rates of 1.8 percent in the business sector and 1.4 percent in the nonfarm business sector. The second-quarter productivity increases were greater than first reported because output was revised upward and the increases in hours were revised down. (See table C.)

In manufacturing, the revised productivity changes in the second quarter were:

2.4 percent in manufacturing, 4.8 percent in durable goods manufacturing, and -0.3 percent in nondurable goods manufacturing.

The second-quarter increase in manufacturing productivity combined a strong increase in durable goods industries with the first decrease in nondurable goods industries since the third quarter of 1994 (when it fell 0.9 percent). 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. Second-quarter measures are summarized in table A and appear in detail in tables 1 through 5; the differences between these measures and the preliminary second-quarter figures issued on August 12 are shown in table C.

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.

Business

From the first quarter to the second quarter of 1997, business sector output per hour increased at a 2.7 percent annual rate. This was the largest increase in productivity since the fourth quarter of 1993, when output per hour grew 4.3 percent. During the first quarter of 1997, productivity had increased 1.8 percent, as output grew 5.9 percent and hours of all persons rose 4.0 percent. In the second quarter, business sector output rose 4.3 percent and hours of all persons engaged in the sector rose 1.5 percent (table 1). The slower second-quarter hours increase reflected a 1.8 percent increase in employment and a 0.3 percent decline in average weekly hours. The decline in average weekly hours followed four quarters of increases.

Hourly compensation increased 3.2 percent in the second quarter of 1997, following a 4.4 percent rise in the first quarter. This measure includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), increased at a 2.1 percent annual rate in the second quarter of 1997. This was the largest gain since the first quarter of 1992 (5.0 percent) and followed a 1.9 percent rise in the first quarter.

Unit labor costs, which reflect changes in hourly compensation and productivity, grew at a 0.4 percent annual rate during the second quarter, less than the 2.5 percent rise in the first quarter. The implicit price deflator for the business sector, which incorporates changes in both unit labor costs and unit nonlabor payments, increased 1.2 percent in the second quarter and 2.0 percent during the first quarter of 1997 (seasonally adjusted annual rates).

Nonfarm business

Productivity grew at a 2.7 percent annual rate in the nonfarm business sector during the second quarter of 1997, faster than at any time since the fourth quarter of 1993, when it rose 3.3 percent. During the first quarter of 1997, nonfarm business productivity had increased 1.4 percent, reflecting gains of 5.6 percent in output and 4.2 percent in hours. Both output and hours increases slowed in the second quarter. Output increased 4.2 percent and hours of all persons increased 1.5 percent (table 2). The modest rise in hours resulted from a 1.7 percent increase in employment and a 0.3 percent decline in average weekly hours at work.

Hourly compensation increased 3.2 percent in the second quarter, compared with a 4.5 percent increase one quarter earlier (seasonally adjusted annual rates). When the rise in the CPI-U is taken into account, real hourly compensation increased 2.1 percent in both the first and the second quarters of 1997. Real hourly compensation growth has not exceeded 2.1 percent since the first quarter of 1992, when it increased 4.8 percent.

Unit labor costs edged up 0.5 percent during the second quarter of 1997, the smallest increase since the second quarter of 1994, when these costs fell 0.2 percent. Unit labor costs had increased at a 3.1 percent annual rate in the first quarter. The implicit price deflator for nonfarm business output rose 1.1 percent in the second quarter, down from the 2.4 percent gain one quarter earlier.

Manufacturing

Productivity increased 2.4 percent in manufacturing in the second quarter of 1997, as output grew 3.6 percent and hours of all persons increased 1.1 percent (seasonally adjusted annual rates). In the previous quarter, a similar increase in productivity, 2.5 percent, occurred as output rose 5.4 percent while hours grew 2.8 percent. The second-quarter increase in productivity was due entirely to a 4.8 percent productivity gain in the durable goods sector, as output per hour worked declined 0.3 percent in the nondurable goods sector (tables 4 and 5).

Hourly compensation of all manufacturing workers increased 2.6 percent during the second quarter, down from a 4.4 percent increase in the first quarter of 1997. Real hourly compensation in the manufacturing sector rose 1.5 percent in the second quarter when the increase in consumer prices is taken into account. During the first quarter, real hourly compensation rose 2.0 percent.

Manufacturing unit labor costs edged up at a 0.1 percent annual rate in the second quarter of 1997, after increasing 1.8 percent in the first quarter. Unit labor costs declined 2.6 percent in durable goods industries in the second quarter of 1997, after rising 1.7 percent in the first quarter. In nondurable manufacturing, unit labor costs increased 3.6 percent in the second quarter and 0.7 percent in the first quarter of 1997.

Nonfinancial corporations

Preliminary second-quarter 1997 measures of productivity and costs also were announced today for nonfinancial corporations (tables B and 6). Productivity increased 3.2 percent during the second quarter, as output rose 5.5 percent and hours increased 2.2 percent (seasonally adjusted annual rates). In the first quarter of 1997, productivity had increased 1.9 percent in nonfinancial corporations, as output increased 6.1 percent and employee hours rose 4.1 percent. Nonfinancial corporations include all corporations doing business in the United States, except for financial corporations, which include depository institutions, nondepository institutions, security and commodity brokers, insurance carriers, regulated investment offices, small business investment offices, and real estate investment trusts.

Hourly compensation rose 3.2 percent in the second quarter, down from a 4.3 percent increase one quarter earlier. But when the rise in the CPI-U is taken into account, real hourly compensation increased 2.1 percent in the second quarter, slightly more than the 1.9 percent rise in the first quarter of 1997 (table 6).

Unit labor costs for nonfinancial corporations were unchanged in the second quarter of 1997, following a 2.3 percent rise in the first quarter. Unit nonlabor costs fell 0.2 percent, and unit profits rose 4.0 percent. During the first quarter, unit nonlabor costs had dropped 1.8 percent, and unit profits rose 3.8 percent (seasonally adjusted annual rates). The implicit price deflator for nonfinancial corporate output rose 0.5 percent in the second quarter and 1.6 percent in the first quarter.

Revised Measures

Current and previous measures for the second quarter of 1997 for the business, nonfarm business, and manufacturing sectors are compared in table C. The quarterly movements differ from those reported on August 12 based on information then available. In the business and nonfarm business sectors, changes in output (which are based on information from the national income and product accounts prepared by the U.S. Department of Commerce) and productivity were revised up, and the increase in hours was revised down. Manufacturing output (which is based on information from the Federal Reserve Board) and productivity were revised down.