1998 Second Quarter (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.

Second Quarter 1998

The Bureau of Labor Statistics of the U.S. Department of Labor reported preliminary productivity data--as measured by output per hour of all persons-- for the second quarter of 1998. The preliminary seasonally adjusted annual rates of productivity change in the second quarter were:

-0.6 percent in the business sector, and -0.2 percent in the nonfarm business sector.

In both the business and nonfarm business sectors, the decline in productivity growth in the second quarter was the first since the first quarter of 1995. In the first quarter of 1998, output per hour of all persons (as revised) rose 4.1 percent in the business sector and 3.5 percent in the nonfarm business sector.

In manufacturing, productivity changes in the second quarter were:

3.3 percent in manufacturing, 5.7 percent in durable goods manufacturing, and 0.2 percent in nondurable goods manufacturing.

The data in this release reflect the regular multi-year GDP revisions released by the Bureau of Economic Analysis of the U.S. Department of Commerce on July 31. They also reflect the annual benchmark revision to the BLS establishment survey data and revisions to hours series released by BLS on June 5. All employment and hours series incorporate new information on seasonal patterns. See Revised Measures. Appendix tables 1-6 show revised historical series.

The second-quarter increase in manufacturing productivity was the result of a small increase in output, 1.7 percent, combined with a drop in hours worked in the sector of 1.5 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. Second-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 first to the second quarter of 1998, business sector productivity fell at a 0.6 percent annual rate, as output rose 1.2 percent and hours of all persons engaged in the sector rose faster, 1.8 percent. The second-quarter increase in output was the smallest recorded since a 0.3- percent rise in the second quarter of 1995. The revised measure of labor productivity for the first quarter shows that productivity rose 4.1 percent as output and hours increased 7.1 and 2.9 percent, respectively (table 1).

Hourly compensation increased 3.9 percent in the second quarter and 4.9 percent in the first quarter of 1998. 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 4.5-percent annual rate during the second quarter. This was only the fourth time since 1990 that these costs increased more than 4 percent in a single quarter.

Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), increased at a 1.9 percent annual rate during the second quarter of 1998 after rising 4.4 percent in the first quarter of 1998.

The implicit price deflator for the business sector, which reflects changes in unit labor costs and unit nonlabor payments, increased 0.3 percent in the second quarter and 0.2 percent in the first quarter of 1998.

Nonfarm business

Productivity decreased slightly--0.2 percent--in the nonfarm business sector during the second quarter of 1998, after rising 3.5 percent in the first quarter (table 2). Output rose 1.3 percent during the second quarter, but hours of all persons working in the sector increased more rapidly, 1.6 percent. In the first quarter of the year, output had risen 7.0 percent, the largest increase since an 8.4-percent increase occurred in the fourth quarter of 1992. Hours of all persons in the nonfarm business sector rose 3.4 percent in the first quarter of 1998.

Hourly compensation increased 3.8 percent in the second quarter, down from the 4.6 percent rise posted one quarter earlier. When the rise in the CPI-U is taken into account, increases in real hourly compensation for the second quarter of the year rose 1.8 percent.

Unit labor costs grew 4.1 percent in the second quarter and 1.1 percent in the previous quarter. The implicit price deflator for nonfarm business output grew 0.1 percent in the second quarter and 0.6 percent in the first quarter of 1998.

Manufacturing

Productivity increased 3.3 percent in manufacturing, as output rose 1.7 percent and hours of all persons dropped 1.5 percent (seasonally adjusted annual rates). In the first quarter, productivity rose 1.4 percent as output increased 2.2 percent and hours increased 0.8 percent (table 3). Labor productivity in manufacturing has risen in every quarter since the third quarter of 1993, when it fell 0.2 percent. In durable goods, productivity increased 5.7 in the second quarter of 1998 as output rose 3.6 percent while hours of all persons fell 1.9 percent. In nondurable goods manufacturing, productivity rose 0.2 percent in the second quarter as both output and hours dropped, 0.7 and 0.9 percent, respectively (tables 4 and 5).

Hourly compensation of all manufacturing workers increased 2.5 percent during the second quarter, less than the 4.1 percent increase in the first quarter. When the increase in consumer prices is taken into account, real hourly compensation rose 0.5 percent in the second quarter.

Unit labor costs in manufacturing fell at a 0.7 percent annual rate in the second quarter. Trends in unit labor costs in the two subsectors were quite different; unit labor costs fell 4.0 percent in durable goods manufacturing and rose 4.2 percent in nondurable goods manufacturing.

Revised Measures

Current and previous measures for the first quarter of 1998 for the business, nonfarm business, and manufacturing sectors are compared in table B. Increases in productivity and output are larger--and increases in hours of all persons are smaller--than those reported on June 4, based on information then available. Increases in unit labor costs are correspondingly smaller than originally reported.

Output data for the business, nonfarm business, and nonfinancial corporate sectors and compensation series for all sectors incorporate the revisions of the national income and product accounts produced by the Bureau of Economic Analysis, U.S. Department of Commerce. Labor input measures have been revised to reflect the annual benchmarking process of employment levels derived from the monthly Current Employment Statistics (CES) survey and the updating of seasonal adjustment factors. In addition, the seasonal adjustment process for hours series reported by CES was refined to correct for distortions associated with the varying length of pay periods across months. (See USDL 98-231.) These revisions extend back to the first quarter of 1988.

As a result of these revisions, annual increases in labor productivity in the business and nonfarm business sectors are higher than previously reported for 1994-96 and slightly lower for 1997. In the manufacturing sector, increases in output per hour since 1994 are slightly less than reported earlier. Appendix tables 1-6 present quarterly and annual measures for 1993-95.

Revised measures: Nonfinancial Corporations

Productivity and cost measures for the first quarter for nonfinancial corporations also were revised to incorporate the most recent information on output, compensation, profits, and labor inputs. Productivity growth was unchanged from that reported on June 4 as downward revisions in output were matched by similar revisions to employee hours. Unit labor costs grew less than originally reported, reflecting a downward revision to hourly compensation. The decrease in unit profits was less than reported on June 4 (table C).