2001 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 2001

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

1.1 percent in the business sector, and 1.5 percent in the nonfarm business sector.

In both sectors, the downward revisions to productivity were due to declines in output that were larger than originally reported and smaller declines in labor hours.

In manufacturing, revised productivity increases in the third quarter were:

2.5 percent in manufacturing, 1.8 percent in durable goods manufacturing, and 2.6 percent in nondurable goods manufacturing.

Manufacturing productivity rose faster than reported on November 7. Both output and hours show smaller declines than originally reported, but the revision to output was greater than that to hours. 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.

The productivity and costs measures in this release incorporate three separate revisions. (1) Measures of hours have been adjusted to incorporate the results of the 2000 Hours at Work Survey for all private nonfarm employees. (2) Output measures for the manufacturing sector now include information released by the Board of Governors of the Federal Reserve System on Nov. 27. (3) Price indexes used to calculate the real output of nonfinancial corporations were revised beginning with the first quarter of 1998.

Business

From second quarter to third quarter of 2001, business sector productivity rose at an annual rate of 1.1 percent, as output decreased 1.9 percent and hours of all persons engaged in the sector decreased 2.9 percent (table 1). The declines in both output and hours were the largest since the first quarter of 1991, when output decreased 3.2 percent and hours fell 4.6 percent. Productivity had increased 2.2 percent during the second quarter of 2001, as output declined 0.7 percent and hours at work fell 2.8 percent (seasonally adjusted annual rates).

Hourly compensation increased 3.5 percent during the third quarter of 2001, the smallest increase in this measure since the second quarter of 1997, when it rose 1.4 percent. Hourly compensation includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Real hourly compensation, which takes into account changes in consumer prices, rose 2.8 percent in the third quarter of 2001.

Unit labor costs increased at an annual rate of 2.4 percent during the third quarter of 2001. The implicit price deflator for the business sector, which reflects changes both in unit labor costs and in unit nonlabor payments, increased at a 1.8 percent annual rate in the third quarter of 2001, after rising 1.7 percent in the previous quarter.

Nonfarm business

Output per hour of all persons in the nonfarm business sector increased 1.5 percent during the third quarter of 2001, after rising 2.1 percent in the second quarter (table 2). Output decreased 2.0 percent and hours of all persons fell 3.4 percent in the third quarter of 2001. As in the business sector, these were the largest declines in output and hours since the first quarter of 1991, when output decreased 3.2 percent and hours fell 4.8 percent.

Hourly compensation grew at a 3.8 percent annual rate in the third quarter of 2001, after increasing 4.7 percent in the previous quarter. When the rise in consumer prices is taken into account, real hourly compensation rose at a 3.1 percent annual rate in the third quarter of 2001.

Unit labor costs rose 2.3 percent in the third quarter of 2001, following a 2.6 percent increase one quarter earlier. The implicit price deflator for nonfarm business rose 1.5 percent in both the second and third quarters of 2001.

Manufacturing

Productivity increased 2.5 percent in manufacturing in the third quarter of 2001, as output declined 5.0 percent and hours of all persons fell 7.4 percent (seasonally adjusted annual rates). In durable goods industries, productivity grew 1.8 percent in the third quarter as output and hours dropped 7.7 and 9.4 percent, respectively. In the nondurable goods industries, third-quarter productivity rose 2.6 percent as output declined 1.7 percent and hours fell further, 4.2 percent (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers rose 3.6 percent during the third quarter of 2001 (seasonally adjusted annual rates). In durable goods manufacturing, hourly compensation rose 4.4 percent during the third quarter. The increase in nondurable goods manufacturing was 2.8 percent. When the increase in consumer prices is taken into account, real hourly compensation for all manufacturing workers rose 2.9 percent in the third quarter.

Unit labor costs in manufacturing rose 1.1 percent in the third quarter of 2001, down sharply from the 6.7-percent increase of the second quarter. Unit labor costs rose 2.5 percent in durable goods manufacturing in the third quarter. In nondurable goods manufacturing, unit labor costs rose 0.2 percent.

Nonfinancial Corporations

Third-quarter 2001 measures of productivity and costs also were released for nonfinancial corporations (tables B and 6). Output per all-employee hour grew at a 2.4 percent annual rate, compared with a 3.3 percent increase in the previous quarter. Output decreased 1.3 percent in the third quarter of 2001, and hours of all employees declined 3.6 percent (seasonally adjusted annual rates). BLS adjusted third-quarter output of nonfinancial corporations to reflect insurance benefits related to the September 11 tragedies. An adjustment to nonfinancial corporate output will be made by the Bureau of Economic Analysis, U.S. Department of Commerce, in its next estimate, but this adjustment will not affect GDP. The nonfinancial corporate 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 for nonfinancial corporations increased 4.9 percent in the third quarter; it rose 6.1 percent in the second quarter. When the rise in consumer prices is taken into account, real hourly compensation increased 4.2 percent in the third quarter and 2.9 percent in the second quarter.

Unit labor costs for the sector increased 2.5 percent in the third quarter. Unit nonlabor costs increased 9.2 percent in the third quarter--the largest increase since the first quarter of 1994, when they rose 11.9 percent. Unit profits fell 25.7 percent in the third quarter of 2001, after dropping 12.6 percent in the second quarter. The implicit price deflator for the output of nonfinancial corporations rose 1.5 percent in the third quarter of 2001. In the previous quarter, the implicit price deflator rose 2.3 percent.

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. 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, as reported on Nov. 7, 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 third quarter of 2001 for the business, nonfarm business, and manufacturing sectors are compared in table C. In the business and nonfarm business sectors, increases in productivity and output are smaller than those reported on Nov. 7, based on the information available at that time. Unit labor cost measures for these sectors are correspondingly higher.

Productivity and cost measures were revised to reflect the results of the 2000 Hours at Work Survey, which are now available. This survey is used to adjust the number of hours for which private nonfarm employees are paid (as reported in the BLS Current Employment Survey) to hours at the workplace. For 2000, these new results show that hours of all persons were lower than originally had been reported. In the nonfarm business sector, hours of all persons grew 1.1 percent in 2000 rather than 1.5 percent, as previously reported. This difference in the ratio of hours at work to hours paid also occurred in the manufacturing sector, where hours of all persons fell 1.4 percent, rather than decreasing 0.9 percent, as previously reported.

In manufacturing, rates of growth in productivity were revised upward in the third quarter. Unit labor costs were revised down, due both to the output revision and a downward revision in hourly compensation (tables 3-5 and appendix tables 3-5). 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. The bulk of the revision began in 1999. The annual measures for 2000 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. 27, 2001.)

On Nov. 30, the Bureau of Economic Analysis, U.S. Department of Commerce, revised the price indexes used to calculate real output of nonfinancial corporations back to the first quarter of 1998. Appendix table 6 shows revised 1998 measures for output, productivity, and unit costs.