1998 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 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 second quarter of 1998. The seasonally-adjusted annual rates of productivity change in the second quarter were:

-0.2 percent in the business sector, and 0.1 percent in the nonfarm business sector.

In both sectors, changes in productivity were revised upward compared with results reported on Aug. 11, as increases in output were revised up and increases in hours were revised down. (See table C.) Business sector productivity declined in the second quarter of 1998 for the first time since the first quarter of 1995, and output per hour increased slightly in the nonfarm business sector.

In manufacturing, the revised productivity changes in the second quarter were: 2.5 percent in manufacturing, 4.7 percent in durable goods manufacturing, and -0.1 percent in nondurable goods manufacturing.

In manufacturing, the changes in productivity were revised downward compared with preliminary estimates. The second-quarter increase in manufacturing output per hour resulted from a small increase in output, 1.0 percent, combined with a 1.4 percent drop in hours worked in the sector (seasonally adjusted annual rates). 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 Aug. 11 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 1998, business sector productivity fell at a 0.2 percent annual rate, as output rose 1.4 percent and hours of all persons engaged in the sector rose faster, 1.7 percent (table A). During the first quarter of 1998, productivity had increased 4.1 percent in the business sector, as strong output growth, at 7.1 percent, combined with a 2.9 percent growth in hours (table 1).

The second-quarter 1998 increase of 4.1 percent in hourly compensation marked the fourth consecutive quarter that the measure rose by more than 4.0 percent (seasonally adjusted annual rates). Hourly compensation 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 2.0 percent annual rate in the second quarter of 1998.

Unit labor costs, which reflect changes in hourly compensation and productivity, grew at a 4.3 percent annual rate during the second quarter, compared with a 0.8 percent rise in the first quarter of 1998. The implicit price deflator for the business sector, which incorporates changes in both unit labor costs and unit nonlabor payments, increased 0.2 percent in each of the first two quarters of 1998 (seasonally adjusted annual rates). A sharp drop in unit nonlabor payments, 6.6 percent, offset the large rise in unit labor costs in the second quarter.

Nonfarm business

Productivity in the nonfarm business sector increased 0.1 percent during the second quarter of 1998, as output increased 1.6 percent and hours of all persons increased 1.5 percent (table A). The output increase was the smallest since a 0.5 percent increase in the second quarter of 1995. In the second quarter of 1998, output per hour was 2.0 percent higher than in the second quarter of 1997 (table 2).

Hourly compensation grew at a 4.0 percent annual rate in the second quarter of 1998, following two quarters of even faster growth. When the rise in the CPI-U is taken into account, real hourly compensation increased 2.0 percent in the second quarter of 1998.

In the second quarter of 1998, unit labor costs increased 3.9 percent, unit nonlabor payments fell 6.2 percent, and the implicit price deflator for nonfarm business output rose 0.2 percent (seasonally adjusted annual rates).

Manufacturing

Productivity increased 2.5 percent in manufacturing in the second quarter of 1998, as output grew 1.0 percent and hours of all persons fell 1.4 percent (seasonally adjusted annual rates). The second-quarter increase in output per hour was due entirely to a 4.7 percent productivity gain in the durable goods sector, as output per hour declined 0.1 percent in the nondurable goods sector (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers increased 2.6 percent during the second quarter of 1998, reflecting a 1.5 percent rise in hourly compensation in durable goods industries combined with a 4.4 percent increase in the nondurable goods sector. Real hourly compensation in the total manufacturing sector rose 0.6 percent in the second quarter, reflecting a 0.5 percent decline in real hourly compensation in durable manufacturing and a 2.4 percent gain in nondurable manufacturing.

Manufacturing unit labor costs edged up 0.1 percent in the second quarter of 1998. A 3.0 percent drop in unit labor costs in durable goods industries offset a 4.5 percent increase in the smaller nondurable manufacturing sector.

Nonfinancial corporations

Preliminary second-quarter 1998 measures of productivity and costs also were announced today for nonfinancial corporations (tables B and 6). Productivity increased 2.8 percent during the second quarter, as output rose 3.7 percent and hours increased 0.9 percent (seasonally adjusted annual rates). Nonfinancial corporations include 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 rose 4.6 percent, and real hourly compensation increased 2.5 percent in the second quarter of 1998. This was the fourth consecutive quarter that this measure grew at an annual rate of more than 2.0 percent (table 6).

Unit labor costs for nonfinancial corporations increased 1.8 percent in the second quarter of 1998. Unit nonlabor costs rose 0.5 percent, the first increase since the fourth quarter of 1995, and unit profits fell 10.6 percent. The implicit price deflator for nonfinancial corporate output declined 0.2 percent in the second quarter of 1998.

Revised Measures

Current and previous measures for the second quarter of 1998 for the business, nonfarm business, and manufacturing sectors are compared in table C. The quarterly movements differ from those reported on Aug. 11 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.