1998 First 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.

First Quarter 1998

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 first quarter of 1998. The revised seasonally adjusted annual rates of productivity change in the first quarter were:

1.7 percent in the business sector, and 1.1 percent in the nonfarm business sector.

In both sectors, the revised first-quarter gains in output were larger than those reported initially, and the gains in hours were slightly lower. The revisions increased the first-quarter 1998 productivity gains, making them similar to those of the fourth quarter of 1997.

In manufacturing, productivity changes in the first quarter were:

0.7 percent in manufacturing, 0.4 percent in durable goods manufacturing, and 1.2 percent in nondurable goods manufacturing.

The revised gain in manufacturing productivity in the first quarter of 1998 was still the smallest since the third quarter of 1993, when productivity fell 0.1 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. First-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 fourth quarter of 1997 to the first quarter of 1998, business productivity increased 1.7 percent, reflecting increases of 6.0 percent in output and 4.2 percent in hours of all persons (seasonally adjusted annual rates). The increase in productivity was about the same as the 1.6 percent rise recorded in the fourth quarter, when output rose 4.8 percent and hours grew 3.2 percent (table 1).

Hourly compensation increased 4.4 percent during the first quarter of 1998, considerably less than the 5.6 percent rise recorded in the fourth quarter of 1997. This measure of compensation 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, also increased less during the first quarter, 2.7 percent, than they had during the previous quarter, when they rose 3.9 percent.

Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), rose at a 3.9 percent annual rate in the first quarter; it had risen 3.4 percent in the fourth quarter of 1997. The first-quarter increase in real hourly compensation was the largest recorded in the business sector since the first quarter of 1992, when it rose 5.0 percent.

The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, increased 0.4 percent in the first quarter of 1998 and 0.9 percent during the fourth quarter of 1997. Increases in both quarters were lower than those for unit labor costs due to drops in unit nonlabor payments, which fell 4.3 percent in the fourth quarter and 3.6 percent in the first quarter.

Nonfarm business

Productivity rose 1.1 percent in nonfarm business during the first quarter of 1998, reflecting an increase of 6.0 percent in output and a 4.8 percent rise in hours of all persons. In the previous quarter, nonfarm productivity had risen slightly more, 1.4 percent, as output increased 4.9 percent and the hours required to produce that output rose by 3.5 percent (table 2).

The first-quarter increase in hourly compensation, 4.2 percent, was smaller than that reported for the fourth quarter, when it increased 5.2 percent. However, when the rise in the CPI-U is taken into account, first- quarter gains in real hourly compensation in the first quarter (3.7 percent) were larger than those of the previous quarter (3.1 percent). The first- quarter gain in real hourly compensation in the nonfarm business sector was the largest since a 4.8-percent gain occurred in the first quarter of 1992.

The increase in unit labor costs in nonfarm business, 3.1 percent in the first quarter, was less than the 3.8-percent rise in the fourth quarter of 1997. Labor costs account for about two-thirds of all costs, but decreases in unit nonlabor payments in both quarters held down growth in the implicit price deflator, which rose 0.8 percent in the first quarter and 1.0 percent one quarter earlier.

Manufacturing

First-quarter 1998 gains in productivity, output, and hours in manufacturing were considerably lower than those recorded in the fourth quarter of 1997. Productivity increased 0.7 percent in manufacturing in the first quarter, as output rose 2.0 percent and hours of all persons increased 1.3 percent (seasonally adjusted annual rates). In the previous quarter, productivity had risen 4.3 percent, reflecting gains in output and hours of 8.2 percent and 3.8 percent, respectively. The first quarter productivity gain in durable goods industries, 0.4 percent, was down sharply from the 6.7 percent gain in the fourth quarter. Productivity gains in nondurable goods industries, however, were the same in the first and fourth quarters, 1.2 percent (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers rose 2.8 percent during the first quarter, after having risen 6.1 percent in the previous quarter. Real hourly compensation, which takes account of changes in consumer prices, rose 2.3 percent in the first quarter, compared with a 4.0 percent rise one quarter earlier. The first-quarter increase in hourly compensation in durable goods industries, 1.8 percent, was smaller than that in nondurable goods industries, where it rose 4.4 percent.

Unit labor costs rose 2.1 percent in manufacturing in the first quarter of 1998 and 1.8 percent in the fourth quarter of 1997. This is the first time since 1993--when unit labor costs rose 4.6 percent in the second quarter and 3.6 percent in the third quarter--that unit labor costs in manufacturing have risen in two consecutive quarters. Unit labor costs in durable goods manufacturing rose 1.5 percent in the first quarter, and those in nondurable goods manufacturing rose 3.2 percent.

Nonfinancial corporations

Preliminary first-quarter 1998 measures of productivity and costs for nonfinancial corporations also were announced today (tables B and 6). Productivity rose 2.6 percent in the first quarter, as output increased 7.2 percent and employee-hours grew 4.5 percent (seasonally adjusted annual rates). In the fourth quarter of 1997, productivity had increased only 0.6 percent as output and hours grew 4.9 and 4.3 percent, respectively. Nonfinancial corporations include all corporations doing business in the United States, except banks, stock and commodity brokers, and finance and insurance agencies.

Hourly compensation increased 4.2 percent during the first quarter, and real hourly compensation rose 3.7 percent when the rise in the CPI-U is taken into account. In the fourth quarter, hourly compensation rose 4.7 percent, and real hourly compensation grew 2.6 percent.

Unit labor costs for nonfinancial corporations increased 1.6 percent in the first quarter, considerably less than the 4.1 percent increase recorded in the fourth quarter of 1997. Unit nonlabor costs fell in both quarters, 1.7 percent in the first quarter and 2.9 percent in the fourth quarter. Unit profits also dropped in the first quarter, by 6.3 percent. The implicit price deflator for nonfinancial corporate output fell 0.2 percent in the first quarter after having risen 0.4 percent one quarter earlier.

REVISED MEASURES

Current and previous measures for the first quarter of 1998 for business, nonfarm business, and manufacturing are compared in table C. Productivity and output increased more rapidly--and hours rose more slowly-- in the business and nonfarm business sectors than originally reported on May 7, based on information then available. In manufacturing, productivity and output also grew more rapidly than originally reported.