1997 Fourth-Quarter and Annual Averages (Preliminary) 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.

The Bureau of Labor Statistics of the U.S. Department of Labor today reported preliminary productivity data--as measured by output per hour of all persons--for the fourth quarter and for the full year 1997. In the fourth quarter, productivity advanced 2.2 percent in the business sector as output grew 5.5 percent and hours worked rose less--3.2 percent (seasonally adjusted annual rates). In the nonfarm business sector, productivity rose 2.0 percent as output increased 5.5 percent and hours grew 3.5 percent.

For the year 1997, the increases in productivity were about the same as those posted in 1996 (as revised) in both the business and nonfarm business sectors. Fourth-quarter productivity and related measures are summarized in table A and annual data in table B. Detailed information is presented in tables 1 through 5.

In the manufacturing sector, increases in productivity were:

Manufacturing productivity grew at a 4.2 percent annual rate in the fourth quarter, much more slowly than it had in the previous quarter, when it grew 8.0 percent (as revised). On an annual basis, manufacturing productivity increased 4.4 percent in 1997--the largest increase since 1986, when it grew 4.5 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.)

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, 1997

Business

Productivity in the business sector grew 2.2 percent in the fourth quarter of 1997, reflecting an increase of 5.5 percent in output combined with a 3.2 percent rise in the hours of all persons engaged in the sector. The productivity increase was smaller than that posted in the previous quarter. In the third quarter of 1997, productivity rose 3.5 percent (as revised), as output grew 3.6 percent and hours 0.1 percent (seasonally adjusted annual rates).

Hourly compensation increased at a 5.4 percent annual rate in the fourth quarter of 1997, greater than the 4.2 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 3.1 percent annual rate during the fourth quarter. During the third quarter of 1997, unit labor costs rose 0.7 percent.

Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), rose at a 3.2 percent annual rate for persons in the business sector. This measure rose 2.1 percent during the third quarter. The fourth-quarter increase was the largest increase in real hourly compensation in the business sector since a 5.0-percent rise in the first quarter of 1992.

The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, increased at an annual rate of 1.1 percent in both the third and fourth quarters of 1997.

Nonfarm business

In the nonfarm business sector, productivity increased 2.0 percent in the fourth quarter, as output rose 5.5 percent and hours of all persons-- employees, proprietors, and unpaid family workers--rose 3.5 percent (seasonally adjusted annual rates). As in the larger business sector, productivity growth in the fourth quarter was slower than that recorded in the previous quarter. During the third quarter of 1997, nonfarm productivity rose 3.6 percent as output increased 3.7 percent and hours edged up 0.1 percent (table 2). The 3.6-percent increase in labor productivity in the third quarter was the largest since the fourth quarter of 1992, when it rose 5.8 percent.

Hourly compensation in the nonfarm business sector rose 5.1 percent in the fourth quarter, and real hourly compensation increased 2.9 percent when the increase in the CPI-U was taken into account. During the third quarter, hourly compensation had increased by 3.8 percent, and real hourly compensation had risen 1.8 percent.

Unit labor costs increased 3.0 percent in the fourth quarter, compared with a 0.2 percent rise in the previous quarter. The implicit price deflator for nonfarm business output rose 1.2 percent in both the third and fourth quarters of 1997.

Manufacturing

Manufacturing productivity grew at a 4.2 percent seasonally adjusted annual rate in the fourth quarter of 1997, down from the 8.0 percent increase posted in the third quarter (table 3). Output rose 8.3 percent in the fourth quarter, and hours of all persons rose 4.0 percent. In the third quarter, output had risen 6.1 percent, and hours had fallen 1.7 percent. In durable goods manufacturing, productivity rose 6.6 percent in the fourth quarter as output rose 10.5 percent and hours of all persons increased 3.7 percent. In the previous quarter, durable goods producers experienced an 11.0 percent advance in productivity. Among nondurable goods manufacturers, productivity rose 1.2 percent in the fourth quarter as output and hours both increased, 5.6 and 4.4 percent, respectively. In the third quarter, productivity in nondurable goods manufacturing increased 4.8 percent (tables 4 and 5).

The average hourly compensation of manufacturing workers increased 5.7 percent in the fourth quarter, up from the 3.4 percent increase posted in the previous quarter. When the increase in consumer prices was taken into account, real hourly compensation in the fourth quarter rose 3.6 percent, compared with the 1.4 percent rise in the third quarter. In durable goods manufacturing, hourly compensation rose 7.1 percent in the fourth quarter, and real hourly compensation increased 4.9 percent. Fourth-quarter increases in both hourly compensation and real hourly compensation were smaller in nondurable goods manufacturing; hourly compensation rose 3.6 percent, and real hourly compensation increased 1.5 percent.

Since the fourth-quarter increase in manufacturing hourly compensation outpaced the increase in labor productivity, unit labor costs for the manufacturing sector rose--1.5 percent. Unit labor costs in manufacturing had fallen 4.2 percent in the third quarter. In durable goods manufacturing, unit labor costs rose 0.4 percent in the fourth quarter of 1997. In the last 17 quarters, unit labor costs in durable goods rose in only one other quarter (the first quarter of 1997, by 0.6 percent). In nondurable goods manufacturing, unit labor costs rose 2.4 percent in the fourth quarter, compared with a 0.2-percent rise one quarter earlier.

ANNUAL AVERAGE CHANGES, 1996-1997

Business

Business productivity increased 1.9 percent when the annual average for 1997 is compared with the annual average for 1996 (table B). The 1997 increase was about the same as the 2.0-percent rise posted in the previous year. Business sector output rose 4.5 percent in 1997 and hours of all persons engaged in the sector rose 2.6 percent. The output increase was the largest since 1984, when it rose 8.5 percent. In 1996, business sector output increased 3.5 percent and hours increased 1.4 percent.

Hourly compensation in the business sector rose 3.9 percent in both 1996 and 1997. Real hourly compensation grew faster in 1997, 1.6 percent, than in 1996, when it grew 0.9 percent. Unit labor costs rose 2.0 percent in 1997, slightly more than the 1.8 percent increase in the previous year. The implicit price deflator rose 1.7 percent in 1997 and 1.9 percent in 1996.

Nonfarm business

Productivity increased 1.7 percent in the nonfarm business sector during 1997, as output rose 4.5 percent and hours of all persons increased 2.7 per cent. The increase in labor productivity in 1996, 1.9 percent, occurred as output and hours rose 3.5 and 1.6 percent, respectively.

In both 1996 and 1997, hourly compensation rose 3.8 percent. Real hourly compensation, however, increased 1.5 percent in 1997 and 0.8 percent one year earlier. Unit labor costs in the nonfarm business sector grew 2.1 percent in 1997, slightly more than the 1.9-percent increase in 1996. The implicit price deflator for nonfarm business rose 1.7 percent in both 1997 and 1996.

Manufacturing

Manufacturing productivity grew 4.4 percent in 1997, as output rose 5.6 percent and hours of all persons increased 1.1 percent (table B) . During 1996, total manufacturing productivity had risen 3.7 percent as output grew 3.2 percent and hours dropped 0.5 percent. In durable goods manufacturing, productivity increased 5.7 percent in 1997 as output rose 8.0 percent and hours of all persons rose 2.2 percent. A smaller increase in labor productivity in nondurable goods manufacturing, 3.2 percent, was the result of a 2.9 percent rise in output coupled with a small drop, 0.3 percent, in hours of all persons.

Hourly compensation of manufacturing workers increased 3.5 percent in 1997, slightly more than the 3.2 percent increase in the previous year. Taking into account the rise in the CPI-U, real hourly compensation in manufacturing rose 1.2 percent in 1997 and 0.2 percent one year earlier. Gains in hourly compensation during 1997 in nondurable goods manufacturing, 3.9 percent, were higher than those posted in durable goods manufacturing, 3.1 percent.

Unit labor costs in manufacturing fell 0.9 percent in 1997. This was the third consecutive year in which manufacturing unit labor costs fell, dropping 0.5 percent in 1996 and 0.3 percent in 1995. Unit labor costs in durable goods manufacturing have declined every year since 1991, when they rose 3.4 percent. In 1997, these costs dropped 2.5 percent. In contrast, unit labor costs in nondurable goods have increased every year since 1963, when they fell 0.6 percent. In 1997, these costs rose 0.7 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 growth is lower, and unit labor costs correspondingly higher, than the figures published on Dec. 4, based on the information then available. For all three sectors, output trends were revised downward and hours trends were revised upward.

Productivity and cost measures were revised to reflect the results of the 1996 Hours at Work Survey, which are now available (http://stats.bls.gov/pdf/mprhws96.pdf). 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 1996, these new results show that hours of all persons increased less than had originally been reported. In the nonfarm business sector, hours of all persons grew 1.6 percent in 1996 rather than 2.2 percent, as previously reported. All of the increase in the ratio of hours at work to hours paid occurred outside of the manufacturing sector, where the decrease in the hours of all persons remained 0.5 percent for the calendar year.

In manufacturing, rates of growth in productivity were revised upward in 1996 due to revisions in the output measures. Unit labor costs have been revised downward by comparable amounts. (See tables 3-5 and appendix tables 1-3.) The quarterly measures of productivity, output, and unit labor costs for manufacturing were revised back to 1992, and the 1996 annual measures were revised due to the incorporation of revised indexes of industrial production. These indexes, published by the Board of Governors of the Federal Reserve System, were changed to incorporate additional and revised source data and updated information on seasonal trends. (See Federal Reserve Statistical Release G.17, "Industrial production and capacity utilization: a revision," Dec. 9, 1997.)

Revised measures: Nonfinancial Corporations

Third-quarter gains in productivity for nonfinancial corporations also were lower than those reported on Dec. 4, based on preliminary data. Most of the change in labor productivity is due to an upward revision in the rate of growth in employee hours (table D).