1999 Fourth Quarter and Annual Averages (Revised) Productivity and Costs

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Fourth Quarter and Annual Averages, 1999

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 1999. Percent changes in business and nonfarm business productivity were:

Business sector 6.1 3.1 Nonfarm business sector 6.4 3.0

In both sectors, the fourth-quarter productivity increases were the largest since the fourth quarter of 1992. 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: Fourth Annual averages quarter 1998-1999

Manufacturing 10.3 6.4 Durable goods manufacturing 10.8 9.6 Nondurable goods manufacturing 10.0 2.4

Manufacturing productivity rose at a 10.3 percent annual rate in the fourth quarter. This was the largest increase since the second quarter of 1982, when output per hour of all persons rose 12.3 percent. On an annual basis, manufacturing productivity rose 6.4 percent in 1999, marking 20 consecutive years of labor productivity increases in this sector. (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, 1999

Business

Business sector productivity rose at a 6.1-percent annual rate in the fourth quarter of 1999, as output increased 8.2 percent and hours of all persons engaged in the sector increased 1.9 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 7.0 percent and output increased by 9.1 percent (seasonally adjusted annual rates).

Hourly compensation grew at a 3.3-percent annual rate in the fourth quarter of 1999, compared with a 4.5-percent rise in the third quarter. 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 2.7-percent annual rate during the fourth quarter. This decrease was the largest since a 3.2-percent decline in the fourth quarter of 1993.

Real hourly compensation, which takes into account changes in consumer prices, rose just 0.4 percent for persons in the business sector. This was the smallest increase since the fourth quarter of 1996, when real hourly compensation increased 0.2 percent.

The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, increased at an annual rate of 1.8 percent in the fourth quarter. This measure rose 0.6 percent during the third quarter of 1999.

Nonfarm business

In the nonfarm business sector, productivity rose at an annual rate of 6.4 percent in the fourth quarter of 1999, as output grew 8.0 percent and hours of all persons--employees, proprietors, and unpaid family workers--rose 1.6 percent (table 2). During the third quarter, productivity had increased 5.0 percent, as output grew 6.8 percent and hours rose 1.7 percent(seasonally adjusted annual rates).

Hourly compensation rose 3.7 percent in the fourth quarter, less rapidly than it had in the previous nine quarters. When the increase in consumer prices was taken into account, real hourly compensation in the fourth quarter of 1999 rose 0.8 percent.

Unit labor costs fell 2.5 percent in the fourth quarter and had declined 0.3 percent in the third quarter of 1999. The implicit price deflator for nonfarm business rose more in the fourth quarter, 2.0 percent, than it had one quarter earlier, when it increased 0.7 percent.

Manufacturing

Manufacturing productivity rose at a 10.3-percent seasonally adjusted annual rate in the fourth quarter of 1999, as output increased 6.6 percent and hours of all persons dropped 3.3 percent (table 3). Double-digit productivity growth rates occurred in both of the manufacturing subsectors last quarter. In durable goods, productivity increased 10.8 percent in the fourth quarter, as output grew 6.6 percent and hours of all persons fell 3.7 percent. In nondurable goods, productivity grew 10.0 percent, reflecting a 7.1-percent rise in output and a 2.7-percent decline in hours (tables 4 and 5).

Hourly compensation of all manufacturing workers rose 4.2 percent during the fourth quarter. The hourly compensation of workers in durable goods industries rose 4.9 percent and that of workers in nondurable goods industries increased 3.2 percent. When the increase in consumer prices was taken into account, real hourly compensation for all manufacturing workers rose 1.3 percent in the fourth quarter.

Since labor productivity gains outstripped the gains in hourly compensation, unit labor costs in the manufacturing sector fell--they dropped 5.5 percent in the fourth quarter of 1999. Unit labor costs fell 5.3 percent in durable goods industries and 6.2 percent in nondurable goods industries.

ANNUAL AVERAGE CHANGES, 1998-1999

Business

In calendar year 1999, business productivity increased 3.1 percent, after having increased 2.8 percent in the previous year (table 1). Output grew 4.7 percent in 1999 and 5.1 percent in 1998. Hours of all persons in the business sector rose less in 1999, 1.5 percent, than in 1998, 2.2 percent.

Percent change from previous year

Hourly compensation increased 5.0 percent in 1999, after having increased 5.3 percent in 1998. Real hourly compensation also increased in both years--2.8 percent in 1999 and 3.9 percent in 1998. 1999 was the fourth consecutive year of growth in this series, following three years of declining real hourly compensation (1993-95).

Unit labor costs increased 1.8 percent in 1999, less than the 2.4 percent increase in the previous year. The implicit price deflator rose 0.9 percent in 1999, compared with a 0.7-percent increase in 1998.

Nonfarm business

Productivity increased 3.0 percent in the nonfarm business sector during 1999, as output rose 4.7 percent and hours of all persons increased 1.7 percent. In 1998, productivity rose 2.8 percent, output rose 5.2 percent, and hours of all persons grew 2.4 percent.

Hourly compensation grew 4.7 percent in 1999, slightly less than the 5.2-percent increase in 1998. The increase in real hourly compensation in 1999, 2.6 percent, also was smaller than during the previous year, when it had increased 3.8 percent.

Unit labor costs in the nonfarm business sector grew 1.7 percent in 1999, compared with the 2.4-percent increase posted in 1998. The implicit price deflator, which reflects nonlabor payments as well as labor costs, rose 0.9 percent in 1999, similar to the 0.8-percent rise in 1998.

Manufacturing

Manufacturing productivity grew 6.4 percent in 1999, continuing a trend of annual increases that began in 1980. Output in the manufacturing sector increased 4.2 percent in 1999, and hours of all persons fell 2.1 percent. Trends in the durable and nondurable sectors differed. In 1999, labor productivity increased 9.6 percent in durable goods manufacturing, reflecting a 7.3-percent output increase and a decline of 2.1 percent in hours. In nondurable goods manufacturing, productivity rose 2.4 percent in 1999, as output edged up 0.3 percent and hours of all persons declined 2.1 percent (tables B, 3, 4, and 5).

Hourly compensation of manufacturing workers increased 5.0 percent in 1999, about the same as the 5.3-percent increase of 1998. Hourly compensation in durable goods rose 5.0 percent in 1999. In nondurable goods industries, hourly compensation rose 4.8 percent. Real hourly compensation of all manufacturing workers rose 2.8 percent in 1999.

Unit labor costs in the manufacturing sector fell 1.4 percent in 1999. These costs have fallen in six of the last eight years. Unit labor costs in durable goods industries fell 4.2 percent and rose 2.3 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 1999 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 drops in unit labor costs are deeper than those reported on Feb. 8 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 declined somewhat less than originally reported. Annual measures of productivity and costs are similar to those reported on Feb. 8. Quarterly series of real hourly compensation in the business, nonfarm business, and manufacturing sectors for 1999 were revised to incorporate the annual recalculation of seasonal factors for the Consumer Price Index.