1998 Third 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.

Third Quarter 1998

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 third quarter of 1998. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were:

2.4 percent in the business sector, and 2.3 percent in the nonfarm business sector.

In both the business and the nonfarm business sectors, productivity increases in the third quarter were larger than those recorded in the second quarter of 1998 (as revised).

In manufacturing, productivity increases in the third quarter were:

3.7 percent in manufacturing, 5.4 percent in durable goods manufacturing, and 1.7 percent in nondurable goods manufacturing.

The 3.7 percent rise in manufacturing productivity occurred as output dropped slightly and hours of all persons working in the sector fell more. 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 1998, business sector productivity increased at a 2.4 percent annual rate. Output rose 3.5 percent, while hours of all persons engaged in the sector went up 1.1 percent (seasonally adjusted annual rates). The increase in hours of all persons in the business sector reflected an employment increase of 2.1 percent and a drop in average weekly hours of 1.0 percent. Average weekly hours in the business sector have fallen in four of the last five quarters. After revisions, second-quarter productivity in the business sector rose 0.1 percent, as output and hours both increased 1.7 percent (tables B and 1).

Hourly compensation increased 3.8 percent during the third quarter of 1998. This marks the third consecutive quarter in which the increase in hourly compensation was smaller than in the previous quarter--hourly compensation rose 4.1 percent in the second quarter of 1998. This measure 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 1.9 percent in the third quarter, about the same as the 2.0-percent increase posted in the previous quarter.

Unit labor costs, which reflect changes in both hourly compensation and productivity, increased at a 1.4 percent annual rate during the third quarter. During the previous quarter, these costs had risen 4.0 percent. The implicit price deflator for the business sector increased at a 0.3 percent annual rate in both the second and third quarters. This measure has increased less than 1.0 percent for four consecutive quarters as declines in unit nonlabor payments, which account for about one-third of all payments, have somewhat offset rises in unit labor costs.

Nonfarm business

Productivity rose 2.3 percent in the nonfarm business sector during the third quarter of 1998. The increase in labor productivity in the third quarter occurred as output rose 3.5 percent and hours of all persons grew by 1.2 percent. In the previous quarter, productivity had risen 0.3 percent as output grew 1.7 percent and hours increased 1.5 percent (table 2).

Hourly compensation increased at a 4.0 percent annual rate in both the second and third quarters, down somewhat from the 4.6 percent rise in the first quarter. When the rise in the CPI-U is taken into account, real hourly compensation rose at a 2.2 percent annual rate during the July-September period.

Unit labor costs increased 1.7 percent during the third quarter of 1998. In the second quarter, unit labor costs in the nonfarm business sector rose 3.7 percent. The implicit price deflator for nonfarm business output rose 0.6 percent in the third quarter.

Manufacturing

Productivity increased 3.7 percent in manufacturing in the third quarter of 1998, as output dipped by 0.6 percent and hours of all persons fell 4.1 percent (seasonally adjusted annual rates). The third-quarter decline in output marks the first time output fell in the sector since a 10.0-percent drop was recorded in the first quarter of 1991. Third-quarter growth rates in productivity and output were quite different in the durable and nondurable manufacturing sectors. In the durable goods sector, third-quarter productivity rose by 5.4 percent as output increased 1.8 percent and hours of all persons fell 3.4 percent. Labor productivity also increased in the nondurable goods sector during the third quarter, 1.7 percent, as output dropped 3.5 percent and hours of all persons dropped more, 5.1 percent. Nondurable goods output also dropped in the second quarter, by 1.3 percent (tables 3, 4, and 5).

Hourly compensation of manufacturing workers increased an average of 2.9 percent during the third quarter, after rising 2.6 percent in the previous quarter (seasonally adjusted annual rates). In the third quarter, hourly compensation grew 1.2 percent in durable goods and 5.6 percent in nondurable goods. When the increase in the CPI-U is taken into account, real hourly compensation in total manufacturing rose 1.1 percent in the third quarter.

Unit labor costs fell 0.7 percent in the third quarter of 1998, the first decline in a year. This decline in unit labor costs reflects a drop of 4.0 percent in durable goods industries and an increase of 3.8 percent in the smaller nondurable goods sector.

Revised Measures

Current and previous measures for the second quarter of 1998 for the business, nonfarm business, and manufacturing sectors are compared in table B. In the business and nonfarm business sectors, the quarterly movements in output per hour and output are slightly higher, and unit labor costs correspondingly lower, than those reported on Sept. 3, based on information then available. Conversely, productivity and output movements in the manufacturing sector were revised slightly downward and unit labor costs upward, based on newer information from the Federal Reserve Board's Indexes of Industrial Production.

Revised measures: Nonfinancial Corporations

Second quarter 1998 productivity and cost measures for nonfinancial corporations also were revised to incorporate more recent information than was available on Sept. 3. Small upward revisions were made to productivity and output, with a corresponding downward revision to unit labor costs. Unit profits show less of a decline than originally reported (tables C and 6).