1997 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 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 third quarter of 1997. The seasonally-adjusted annual rates of productivity growth in the third quarter were:

4.0 percent in the business sector, and 4.1 percent in the nonfarm business sector.

The third-quarter increase in labor productivity in the nonfarm business sector was the largest since the fourth quarter of 1992.

In manufacturing, revised productivity increases in the third quarter were: 9.3 percent in manufacturing, 13.1 percent in durable goods manufacturing, and 5.2 percent in nondurable goods manufacturing.

The third-quarter productivity increase in manufacturing occurred as output rose at a 7.2 percent rate and hours of all persons working in the sector fell 1.9 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. 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 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 second quarter to the third quarter of 1997, business sector productivity rose 4.0 percent as output increased 3.8 percent but hours of all persons engaged in the sector fell off slightly, 0.2 percent (seasonally adjusted annual rates). Employment in the business sector rose in the third quarter by 0.9 percent, but this increase was offset by a 1.0 percent decline in average weekly hours at work. In the second quarter, productivity had risen 2.4 percent, reflecting increases in output and hours of all persons of 3.9 and 1.5 percent, respectively (table 1).

Hourly compensation increased 4.3 percent during the third quarter of 1997; it had increased 3.3 percent one quarter earlier. This measure includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Unit labor costs in both the second and third quarters rose modestly--0.3 percent in the third quarter and 0.9 percent in the second quarter.

Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), rose 2.3 percent in the third quarter and 2.2 percent in the second quarter of 1997.

The implicit price deflator for the business sector, which reflects changes in both unit labor costs and unit nonlabor payments, increased at a 1.1 percent annual rate in the third quarter of 1997, somewhat less than the 1.5 percent increase posted in the previous quarter.

Nonfarm business

Productivity increased 4.1 percent in the nonfarm business sector during the third quarter of 1997 as output rose 4.0 percent and hours of all persons declined 0.1 percent. As in the larger business sector, an employment increase, 1.0 percent, was more than offset by a decline in average weekly hours at work, 1.1 percent. During the second quarter of 1997, productivity in the nonfarm business sector had increased 2.4 percent, reflecting a gain of 3.8 percent in output and a 1.4 percent rise in hours (table 2).

Hourly compensation increased at a 3.9 percent annual rate in the third quarter, compared with a 3.3 percent increase one quarter earlier. When the rise in the CPI-U is taken into account, real hourly compensation rose at a 1.9 percent annual rate in the third quarter, following a 2.2 percent rise during the second quarter of the year.

Unit labor costs fell slightly, 0.2 percent, in the third quarter of 1997 after having risen 0.9 percent in the second quarter. The implicit price deflator rose 1.2 percent in the third quarter of 1997. This reflects both the decrease in unit labor costs and a 3.7 percent rise in unit nonlabor payments; labor costs account for approximately 64 percent of nonfarm business payments. In the second quarter, the implicit price deflator for the nonfarm business sector had risen 1.4 percent.

Manufacturing

Productivity increased 9.3 percent in manufacturing in the third quarter of 1997, as output rose 7.2 percent and hours of all persons fell 1.9 percent (seasonally adjusted annual rates). This increase in labor productivity was the largest in the manufacturing sector since the second quarter of 1982, when it rose 12.5 percent. In the second quarter of 1997, productivity rose 2.8 percent, reflecting an output increase of 3.9 percent and an increase in hours of 1.1 percent. In durable goods industries, productivity grew 13.1 percent in the third quarter as output rose 12.1 percent and hours fell 0.9 percent. In the nondurable goods industries, third-quarter productivity grew 5.2 percent as output rose 1.6 percent and hours dropped 3.4 percent (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers rose 3.4 percent during the third quarter, compared with an increase of 2.6 percent during the second quarter (seasonally adjusted annual rates). When the increase in the CPI-U is taken into account, real hourly compensation increased 1.4 percent in the third quarter and 1.5 percent one quarter earlier. In durable goods manufacturing, hourly compensation rose 2.4 percent during the third quarter of 1997, and real hourly compensation rose 0.4 percent. The increases in nondurable goods manufacturing were higher--hourly compensation rose 5.0 percent and real hourly compensation rose 2.9 percent.

Because the large increase in labor productivity more than offset the rise in hourly compensation in the manufacturing sector, unit labor costs fell at a 5.4 percent annual rate in the third quarter of 1997. This decline was the largest recorded in the manufacturing sector since a 5.5 percent drop in the second quarter of 1963. Unit labor costs fell in both durable and nondurable goods manufacturing in the third quarter of 1997. Unit labor costs fell 9.5 percent in durable goods industries and declined 0.2 percent in nondurable goods industries. In the second quarter, unit labor costs in manufacturing fell 0.2 percent.

Nonfinancial Corporations

Third-quarter 1997 measures of productivity and costs also were announced for nonfinancial corporations (tables B and 6). Output per all- employee hour rose at a 6.7 percent annual rate, the largest increase since the first quarter of 1986 when it increased 9.6 percent. In the second quarter of 1997, output per hour of all employees had increased 2.5 percent. Output increased 7.9 percent in the third quarter of 1997, while hours of all employees increased 1.1 percent. 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 4.5 percent in the third quarter; it had risen 3.3 percent in the second quarter. When the rise in the CPI-U is taken into account, real hourly compensation increased 2.4 percent in the third quarter and 2.2 percent one quarter earlier.

Both unit labor costs and unit nonlabor costs fell during the third quarter of 1997 after posting modest gains in the previous quarter. Unit labor costs for nonfinancial corporations dropped 2.1 percent in the third quarter, after increasing 0.8 percent during the second quarter. Unit nonlabor costs fell 1.7 percent in the third quarter; they had risen 0.5 percent one quarter earlier. Unit profits advanced at a 14.1 percent annual rate, much faster than the 3.2 percent rise in the second quarter of 1997. The implicit price deflator for the output of nonfinancial corporations rose only 0.1 percent in the third quarter of 1997. In the second quarter, the implicit price deflator had risen 1.1 percent.

Revised Measures

Current and previous measures for the third quarter of 1997 for the business, nonfarm business, and manufacturing sectors are compared in table C. Productivity, output, and hourly compensation increases are smaller than those reported on Nov. 13, based on the information available at that time.