1999 First Quarter (Revised) Productivity and Costs

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First Quarter 1999

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 first quarter of 1999. The revised seasonally adjusted annual rates of productivity change in the first quarter were:

4.1 percent in the business sector, and 3.5 percent in the nonfarm business sector.

In both sectors, the revised first-quarter gains in output were smaller than those reported initially, and the gains in hours were unchanged; therefore, the revisions decreased the first-quarter 1999 productivity gains. These data do not reflect the employment benchmark of the BLS Current Establishment Statistics released on June 4.

In manufacturing, the revised productivity changes in the first quarter were: 6.2 percent in manufacturing, 8.7 percent in durable goods manufacturing, and 2.8 percent in nondurable goods manufacturing.

The increase in manufacturing productivity reflected a 1.6-percent rise in output and a drop of 4.4 percent in hours worked. The productivity increase was larger than the 5.3-percent increase recorded in the fourth quarter of 1998. 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. First-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 fourth quarter of 1998 to the first quarter of 1999, business productivity increased 4.1 percent, reflecting increases of 4.6 percent in output and 0.4 percent in hours of all persons (seasonally adjusted annual rates). The increase in productivity was smaller than the 4.6 percent rise recorded in the previous quarter, when output rose 7.3 percent and hours grew 2.6 percent (table 1).

Hourly compensation increased 5.0 percent during the first quarter of 1999. This measure of compensation 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 0.9 percent during the first quarter after declining 0.1 percent during the fourth quarter of 1998.

Real hourly compensation, which takes into account changes in the Consumer Price Index for All Urban Consumers (CPI-U), rose at a 3.5 percent annual rate in the first quarter. This was the seventh consecutive quarter in which real hourly compensation increased 2.0 percent or more (seasonally adjusted annual rates).

The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, increased 0.8 percent in the first quarter of 1999. This increase was larger than any posted during calendar year 1998.

Nonfarm business

Productivity rose 3.5 percent in nonfarm business during the first quarter of 1999, reflecting an increase of 4.4 percent in output and a 0.9 percent rise in hours of all persons. All of these increases were smaller than those of the previous quarter, when nonfarm productivity rose 4.3 percent, as output increased 7.4 percent and hours grew 2.9 percent (table 2).

The first-quarter increase in hourly compensation, 4.2 percent, was similar to the 4.0 percent rise reported for the fourth quarter. When the rise in the CPI-U is taken into account, first-quarter gains in real hourly compensation in the first quarter, 2.6 percent, were larger than those of the previous quarter, when they grew 2.2 percent.

The 0.7 percent increase in unit labor costs in the nonfarm business sector in the first quarter followed a 0.4 percent decline in the fourth quarter of 1998. The implicit price deflator for nonfarm business output rose 1.1 percent in the first quarter of 1999.

Manufacturing

Productivity increased 6.2 percent in manufacturing in the first quarter, as output rose 1.6 percent and hours of all persons fell 4.4 percent (seasonally adjusted annual rates). In durable goods industries, productivity rose sharply, 8.7 percent, during the first quarter. This reflected a 1.8-percent increase in output during the quarter and a drop of 6.3 percent in hours worked in the industry. In nondurable goods industries, productivity rose 2.8 percent as output rose 1.3 percent and hours decreased 1.5 percent (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers rose 5.1 percent during the first quarter. Hourly compensation increased 5.0 percent in durable goods industries and 5.5 percent in nondurable goods industries. Real hourly compensation, which takes account of changes in consumer prices, rose 3.5 percent for all manufacturing workers.

The 6.2-percent gain in manufacturing productivity in the first quarter of 1999 was more than enough to offset the 5.1-percent increase in hourly compensation. As a result, unit labor costs fell 1.1 percent during the quarter, the fourth consecutive drop in this measure. In the durable goods sector, unit labor costs dropped 3.4 percent during the quarter. In the smaller nondurable goods sector, gains in hourly compensation exceeded those in labor productivity, and unit labor costs rose 2.6 percent. Unit labor costs in nondurable manufacturing have risen in every quarter since the third quarter of 1996.

Nonfinancial corporations

Preliminary first-quarter 1999 measures of productivity and costs for nonfinancial corporations also were announced today (tables B and 6). Productivity rose 4.2 percent in the first quarter, as output increased 5.7 percent and employee-hours grew 1.5 percent (seasonally adjusted annual rates). Productivity growth in the first quarter was higher than in the previous quarter, when it increased 3.3 percent. Output and hours grew 5.5 and 2.1 percent, respectively, in the fourth quarter. 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 4.7 percent during the first quarter, and real hourly compensation rose 3.2 percent when the rise in the CPI-U is taken into account. The increase in real hourly compensation was the largest in the sector since a 3.9 percent increase was posted in the first quarter of 1992.

Unit labor costs for nonfinancial corporations increased 0.5 percent in the first quarter, and unit profits increased 7.7 percent. In the previous quarter, unit labor costs increased 0.8 percent, while unit profits fell 12.9 percent. The implicit price deflator for nonfinancial corporate output rose 0.2 percent in the first quarter after having fallen 0.4 percent one quarter earlier.

REVISED MEASURES

Current and previous measures for the first quarter of 1999 for business, nonfarm business, and manufacturing are compared in table C. In the business and nonfarm business sectors, productivity and output increased less, and unit labor costs increased more, than originally reported on May 11, based on information then available. In manufacturing, productivity and output grew more rapidly than originally reported.