1998 Fourth Quarter and Annual Averages (Revised) Productivity and Costs

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Fourth Quarter and Annual Averages, 1998

The Bureau of Labor Statistics of the U.S. Department of Labor today reported revised fourth-quarter seasonally-adjusted annual rates of productivity change--as measured by output per hour of all persons--and revised annual changes for the full year 1998. The revised fourth-quarter productivity increases in both the business and nonfarm business sectors were the largest in six years. Percent changes in business and nonfarm business productivity were:

For the year 1998, productivity increases in both sectors were larger than those posted for 1997, but slightly less than the increases that occurred in 1996. Fourth-quarter productivity and related measures are summarized in table A and appear in detail in tables 1 through 5; the preliminary and revised fourth-quarter and annual data appear in table C.

In the manufacturing sector, increases in productivity were:

Manufacturing productivity rose at a 5.2 percent annual rate in the fourth quarter, as output grew 4.7 percent and hours of all persons fell by 0.5 percent (table A). On an annual basis, manufacturing productivity rose 4.2 percent in 1998, more slowly than it had in the previous year, when it grew 4.9 percent. Output and hours in manufacturing, which includes about 17 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.

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 data 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.

THIRD-TO-FOURTH QUARTER CHANGES, 1998

Business

Business sector productivity rose at a 4.8 percent annual rate in the fourth quarter of 1998, as output increased 7.4 percent and hours of all persons engaged in the sector increased 2.4 percent (table 1). The fourth- quarter increases in both labor productivity and output were the largest since the fourth quarter of 1992, when productivity rose 5.8 percent and output increased by 7.9 percent.

Hourly compensation during the fourth quarter of 1998 rose faster, 4.0 percent, than it had in the previous quarter, when it grew 3.7 percent. 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, decreased at a 0.8 percent annual rate during the fourth quarter. This decrease was the first since a 1.8-percent decline in the first quarter of 1996.

Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), rose at a 2.2 percent annual rate for persons in the business sector. This is comparable to the increases that occurred in the previous two quarters (2.0 percent in the third quarter and 2.3 percent in the second quarter).

The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, rose 0.2 percent in the fourth quarter. This was the fifth consecutive rise of less than 1.0 percent.

Nonfarm business

In the nonfarm business sector, productivity rose at an annual rate of 4.6 percent in the fourth quarter, as output rose 7.5 percent and hours of all persons--employees, proprietors, and unpaid family workers--rose 2.8 percent (table 2). As in the larger business sector, the fourth-quarter gains in productivity and output were the greatest since the fourth quarter of 1992, when productivity rose 6.2 percent and output grew 8.4 percent.

Hourly compensation rose 3.5 percent in the fourth quarter, less rapidly than it had in the previous five quarters. When the increase in the CPI-U was taken into account, real hourly compensation in the fourth quarter of 1998 grew 1.7 percent--also less than it had in recent quarters.

Unit labor costs fell 1.1 percent in the fourth quarter after having increased in the 10 previous quarters. The implicit price deflator for nonfarm business rose less in the fourth quarter, 0.1 percent, than it had one quarter earlier, when it increased 0.7 percent.

Manufacturing

Manufacturing productivity rose at a 5.2 percent seasonally adjusted annual rate in the fourth quarter of 1998, reflecting a 4.7 percent increase in output and a 0.5 percent drop in hours of all persons (table 3). Growth rates in productivity were dissimilar in the two manufacturing subsectors. In durable goods, productivity increased 8.4 percent in the fourth quarter, as output grew 8.5 percent and hours of all persons edged up 0.1 percent. In nondurable goods, output grew 0.1 percent and hours of all persons dropped 1.3 percent, resulting in a productivity increase of 1.4 percent (tables 4 and 5).

Hourly compensation of all manufacturing workers rose 3.3 percent during the fourth quarter. When the increase in consumer prices was taken into account, real hourly compensation in manufacturing rose 1.5 percent in the fourth quarter, as it had in the third quarter of 1998.

Unit labor costs in the manufacturing sector dropped 1.8 percent in the fourth quarter of 1998, as labor productivity gains exceeded those in hourly compensation. In durable goods, unit labor costs fell 4.8 percent in the fourth quarter, the third consecutive decline in these costs in this sector. In nondurable goods industries, unit labor costs rose 1.9 percent in the fourth quarter. This was the smallest increase in unit labor costs in nondurable goods since the third quarter of 1997, when they rose 1.3 percent.

ANNUAL AVERAGE CHANGES, 1997-1998

Business

In calendar year 1998, business productivity increased 2.4 percent, after having increased 1.5 percent in the previous year (table 1). Output grew 4.6 percent in both 1997 and 1998. However, hours of all persons in the business sector rose less in 1998, 2.2 percent, than they had in the previous year, when they rose 3.1 percent.

Hourly compensation increased 4.3 percent in 1998, after having increased 3.6 percent in 1997. Real hourly compensation also increased in both years--2.7 percent in 1998 and 1.2 percent in 1997. 1998 was the third consecutive year of growth in this series, following three years of declining real hourly compensation (1993-95).

Unit labor costs increased 1.9 percent in 1998, slightly less than the 2.1-percent increase in the previous year. The implicit price deflator rose 0.6 percent in 1998, down from the 1.7-percent increase posted in 1997.

Nonfarm business

Productivity increased 2.2 percent in the nonfarm business sector during 1998, as output rose 4.6 percent and hours of all persons increased 2.4 per cent. In 1997, productivity rose 1.2 percent, output rose 4.5 percent, and hours of all persons grew 3.2 percent.

Hourly compensation grew 4.2 percent in 1998, more than the 3.5-percent increases in both 1997 and 1996. Moreover, because the increase in the CPI-U was smaller in 1998 than in the previous year, the increase in real hourly compensation in 1998, 2.6 percent, was considerably larger than the 1.2- percent increase in 1997. The 1998 increase in real hourly compensation was the largest since a 3.2 percent rise in 1986.

Unit labor costs in the nonfarm business sector grew 1.9 percent in 1998, slightly less than the 2.3-percent increase posted in 1997. The implicit price deflator, which reflects nonlabor payments as well as labor costs, rose 0.7 percent in 1998, compared with 1.9 percent in 1997.

Manufacturing

Manufacturing productivity grew 4.2 percent in 1998, continuing a trend of annual increases that began in 1980. Output in the manufacturing sector increased 4.1 percent in 1998, and hours of all persons fell slightly, 0.1 percent. Both output and labor productivity growth rates in 1998 were less than in 1997, when productivity rose 4.9 percent, reflecting an output gain of 6.5 percent and an increase in hours of all persons of 1.6 percent. Trends in the durable and nondurable sectors differed. In 1998, labor productivity increased 6.8 percent in durable goods manufacturing, reflecting a 7.0-percent output increase and hours growth of 0.2 percent. This productivity increase was the largest in durables since 1971, when productivity rose 8.6 percent. In nondurable goods manufacturing, productivity rose 1.2 percent in 1998, as output rose 0.6 percent and hours of all persons declined by 0.5 percent (tables B, 3, 4, and 5).

Hourly compensation of manufacturing workers increased 4.5 percent in 1998, and real hourly compensation rose 2.9 percent. The 1998 increase in real hourly compensation was the largest since 1982, when it rose 3.3 percent. Hourly compensation in durable goods rose 4.1 percent in 1998, and real hourly compensation increased 2.5 percent. In nondurable goods industries, hourly compensation rose 5.1 percent, while real hourly compensation grew 3.5 percent.

Unit labor costs in the manufacturing sector grew by 0.2 percent last year. This was the first annual increase since 1993, when they grew by 0.7 percent. Unit labor costs in durable goods industries fell 2.5 percent in 1998, and they rose 3.9 percent in nondurable goods. In durable goods, unit labor costs have fallen every year since 1991 (when they rose 4.0 percent).

REVISED MEASURES

Productivity and cost data for the fourth quarter and full year 1998 for business, nonfarm business, and manufacturing were revised to incorporate the most recent information (table C). In the business and nonfarm business sectors, productivity and output measures for the fourth quarter are higher and unit labor costs are lower than those reported on Feb. 9 based on information available at that time. Fourth-quarter measures of manufacturing productivity and output were revised down from those reported last month; unit labor costs are correspondingly higher. Annual measures of productivity and costs are similar to those reported on Feb. 9. Quarterly series of real hourly compensation in the business, nonfarm business, and manufacturing sectors were revised back to the first quarter of 1994 to incorporate the annual recalculation of seasonal factors for the Consumer Price Index.