2001 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 2001

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 2001. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were:

2.2 percent in the business sector and 2.7 percent in the nonfarm business sector.

In both the business and the nonfarm business sectors, productivity increases in the third quarter occurred because hours fell more than output (table A).

The tragic events of September 11 occurred late in the reference period for the productivity and costs measures. BLS has made small downward adjustments to the hours of employees of private nonfarm businesses in the third quarter in order to be consistent with the output and compensation measures from the Bureau of Economic Analysis. See Adjustments for further information.

In manufacturing, productivity increases in the third quarter were:

1.1 percent in manufacturing, 2.5 percent in durable goods manufacturing, and -1.3 percent in nondurable goods manufacturing.

The increase in manufacturing productivity compares with a 0.9-percent rate reported for the previous quarter (as revised). Output and hours in manufacturing, which includes about 16 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 2001, business sector productivity increased at a 2.2 percent annual rate. Output declined 1.0 percent, while hours of all persons engaged in the sector dropped 3.1 percent (seasonally adjusted annual rates). The decrease in business output was the largest since the first quarter of 1993, when it fell 1.5 percent, and the drop in hours of all persons was the biggest since a 4.6-percent decline in the first quarter of 1991. After revisions, second-quarter productivity in the business sector rose 2.3 percent, reflecting a 0.7-percent decline in output and a drop of 2.9 percent in hours (tables B and 1).

Hourly compensation increased at an annual rate of 4.1 percent during the third quarter of 2001, after increasing 5.3 percent during the second quarter. This measure includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Real hourly compensation, which takes into account changes in consumer prices, increased 3.4 percent in the third quarter, after rising 2.2 percent in the second quarter of 2001.

Unit labor costs, which reflect changes in both hourly compensation and productivity, increased at a 1.9-percent annual rate during the third quarter. During the previous quarter, these costs increased 3.0 percent. The implicit price deflator for the business sector increased 1.7 percent in both the second and third quarters of 2001.

Nonfarm business

Productivity in the nonfarm business sector rose at a 2.7 percent annual rate during the third quarter of 2001. This increase in labor productivity occurred as output declined 1.0 percent and hours of all persons fell 3.6 percent (seasonally adjusted annual rates). The decline in hours was the largest since the first quarter of 1991, when hours fell 4.8 percent, and the decline in output was the largest since the first quarter of 1993, when it fell 1.3 percent. Productivity rose 2.2 percent in the second quarter of 2001, as output declined 0.4 percent and hours decreased 2.5 percent (table 2).

Hourly compensation increased at a 4.5 percent annual rate in the third quarter of 2001. When the rise in consumer prices is taken into account, real hourly compensation rose at a 3.8-percent annual rate during the July- September period. During the second quarter of 2001, real hourly compensation had risen 1.7 percent.

Unit labor costs increased 1.8 percent during the third quarter of 2001. In the second quarter, unit labor costs in the nonfarm business sector had increased 2.6 percent. The implicit price deflator for nonfarm business output rose 1.5 percent in both the second and the third quarters of 2001.

Manufacturing

Productivity increased 1.1 percent in manufacturing in the third quarter of 2001, as output fell 6.7 percent and hours of all persons dropped 7.7 percent (seasonally adjusted annual rates). A similar increase in labor productivity, 0.9 percent, was recorded in the previous quarter, reflecting decreases in output and hours of 5.0 and 5.8 percent, respectively. Output has fallen in four consecutive quarters, and hours have fallen in the last five quarters. In durable goods, productivity rose 2.5 percent in the third quarter, as output dropped 7.7 percent and hours of all persons fell 10.0 percent. Productivity decreased in nondurable goods, by 1.3 percent, as output fell more than hours; output dropped 5.4 percent, and hours of all persons decreased 4.1 percent (tables 3, 4, and 5).

Hourly compensation of manufacturing workers increased an average of 5.1 percent during the third quarter, a less rapid rise than the 6.2-percent increase recorded in the two previous quarters (seasonally adjusted annual rates). In the third quarter, hourly compensation grew 5.6 percent in durable goods and 4.8 percent in nondurable goods. When the increase in consumer prices is taken into account, real hourly compensation in total manufacturing rose 4.4 percent in the third quarter.

Unit labor costs increased 4.0 percent in the third quarter of 2001, less than they had in the second quarter, when they rose 5.2 percent. In the durable goods sector, unit labor costs in the third quarter increased 3.1 percent. Unit labor costs rose more rapidly, 6.1 percent, in the nondurable goods sector.

Adjustments

The terrorist attacks of September 11 resulted in significant disruptions in the New York and Washington area economies, as well as disruptions to businesses outside these directly impacted areas. The Bureau of Economic Analysis (BEA), U.S. Department of Commerce, reported that most of the effects of this disaster are reflected in the usual source data used to construct the national income and product accounts--the data that underlie the output measures for the business and nonfarm business sectors. See http://www.bea.doc.gov/bea/newsrel/tech301a.htm for BEA's full discussion.

BEA made adjustments to wages of employees because the regular source of data--employment, hours, and earnings from the Bureau of Labor Statistics monthly employment survey--covered the mid-month pay period and did not fully reflect the changes to labor markets following the September attacks. Therefore, BLS adjusted the change in hours of business employees downward by 0.3 percentage point to reflect these compensation adjustments. It is not possible to separately identify the impacts of the attacks on the productivity and cost measures.

Revised Measures

Current and previous measures for the second quarter of 2001 for the business, nonfarm business, and manufacturing sectors are compared in table B. In all these sectors, the measures are similar to those reported on Sept. 5, based on information then available.

Revised measures: Nonfinancial Corporations

Second-quarter 2001 productivity and cost measures for nonfinancial corporations also were revised to incorporate more recent information than was available on Sept. 5. Productivity and output were revised up, while hours growth was unchanged. Productivity grew at an annual rate of 3.4 percent, compared with the previously published growth of 2.8 percent. Since hourly compensation growth was unchanged at 6.2 percent, unit labor costs grew 2.7 percent--less than the 3.3-percent growth reported in September. Unit profits fell 12.6 percent in the second quarter (tables C and 6).

Second quarter 2001