1998 Third 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.

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

3.1 percent in the business sector, and 3.0 percent in the nonfarm business sector.

These increases in labor productivity are larger than those originally reported for the quarter.

In manufacturing, revised productivity increases in the third quarter were: 5.2 percent in manufacturing, 8.3 percent in durable goods manufacturing, and 1.6 percent in nondurable goods manufacturing.

The third-quarter productivity increase in manufacturing occurred as output rose slightly--0.7 percent--and hours of all persons working in the sector dropped 4.3 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. 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 rose 3.1 percent as output increased 4.3 percent and hours of all persons engaged in the sector increased 1.1 percent (seasonally adjusted annual rates). Employment in the business sector rose in the third quarter by 2.2 percent, but this increase was partially offset by a 1.1-percent decline in average weekly hours at work (table 1).

Hourly compensation increased 3.8 percent during the third 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), rose 2.0 percent in the third quarter of 1998.

Unit labor costs rose modestly in the third quarter, 0.7 percent. Unit labor costs had increased 4.0 percent in the second quarter of 1998. The implicit price deflator for the business sector, which reflects changes both in unit labor costs and in unit nonlabor payments, increased at a 0.3 percent annual rate in the third quarter of 1998, the same rate as in the previous quarter.

Nonfarm business

Productivity increased 3.0 percent in the nonfarm business sector during the third quarter of 1998 as output rose 4.2 percent and hours of all persons increased 1.2 percent (table 2). As in the larger business sector, an employment increase, 2.2 percent, was mitigated by a decline in average weekly hours at work of 1.0 percent.

Hourly compensation increased at a 4.1 percent annual rate in the third quarter, similar to a 4.0 percent increase one quarter earlier. When the rise in the CPI-U is taken into account, real hourly compensation rose at a 2.2 percent annual rate in the third quarter.

Unit labor costs rose 1.1 percent in the third quarter of 1998 after increasing 3.7 percent in the second quarter. The implicit price deflator rose 0.6 percent in the third quarter of 1998. This increase reflects both the increase in unit labor costs and a 0.4 percent decline in unit nonlabor payments; labor costs account for approximately 64 percent of nonfarm business payments.

Manufacturing

Productivity increased 5.2 percent in manufacturing in the third quarter of 1998, as output edged up 0.7 percent and hours of all persons fell 4.3 percent (seasonally adjusted annual rates). The output increase was the smallest in manufacturing since a 0.1-percent increase was posted in the second quarter of 1995. Similarly, the decrease in hours was the largest to occur in manufacturing since a 4.3-percent drop in the second quarter of 1995. Trends in productivity growth in the durable and nondurable manufacturing subsectors were very different. In durable goods industries, productivity grew 8.3 percent in the third quarter as output rose 4.5 percent and hours fell 3.5 percent. In the nondurable goods industries, third- quarter productivity grew 1.6 percent as output dropped 3.8 percent and hours fell further--5.3 percent (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers rose 3.3 percent during the third quarter of 1998 (seasonally adjusted annual rates). In durable goods manufacturing, hourly compensation rose 1.6 percent during the third quarter. The increase in nondurable goods manufacturing was higher, 6.0 percent. When the increase in the CPI-U is taken into account, real hourly compensation for all manufacturing workers rose 1.4 percent in the third quarter.

Because the large increase in labor productivity more than offset the rise in hourly compensation in the manufacturing sector, unit labor costs fell at a 1.8-percent annual rate in the third quarter of 1998. Unit labor costs also fell in the previous quarter, 1.3 percent. Unit labor costs fell 6.2 percent in durable goods manufacturing in the third quarter of 1998. In nondurable goods manufacturing, however, unit labor costs in the third quarter rose 4.3 percent.

Nonfinancial Corporations

Third-quarter 1998 measures of productivity and costs also were announced for nonfinancial corporations (tables B and 6). Output per all-employee hour rose at a 4.6 percent annual rate, reflecting increases of 6.2 percent in output and 1.5 percent in hours of all employees. The sector includes 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 increased 4.2 percent in the third quarter; it had risen 4.6 percent in the second quarter. When the rise in the CPI-U is taken into account, real hourly compensation increased 2.3 percent in the third quarter.

Both unit labor costs and unit nonlabor costs fell slightly during the third quarter of 1998. Unit labor costs for nonfinancial corporations dropped 0.4 percent in the third quarter, the first decrease since the third quarter of 1997 (when they fell 1.3 percent). Unit nonlabor costs fell 1.1 percent in the third quarter. Unit profits rose at a 3.1 percent annual rate. This was the first increase in unit profits since they rose 11.8 percent in the third quarter of 1997. The implicit price deflator for the output of nonfinancial corporations declined 0.1 percent in both the second and third quarters of 1998.

Revised Measures

Current and previous measures for the third quarter of 1998 for the busi- ness, nonfarm business, and manufacturing sectors are compared in table C. In the business and nonfarm business sectors, increases in productivity and output are larger than those reported on Nov. 10, based on the information available at that time. Unit labor cost measures for these sectors are correspondingly lower.

In manufacturing, rates of growth in productivity were revised sharply upward in the third quarter due to revisions in the output measures. Unit labor costs were revised downward by similar amounts (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 due to the incorporation of revised indexes of industrial production. Annual measures for 1997 also were affected. 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," Nov. 24, 1998.)