2002 Second 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.

Second Quarter 2002

The Bureau of Labor Statistics of the U.S. Department of Labor reported preliminary productivity data--as measured by output per hour of all persons-- for the second quarter of 2002. The preliminary seasonally adjusted annual rates of productivity change in the second quarter were:

1.4 percent in the business sector and 1.1 percent in the nonfarm business sector.

In the business sector, productivity grew as hours dropped 1.1 percent and output edged up 0.3 percent. A similar pattern occurred in nonfarm businesses, where hours fell 0.7 percent as output grew 0.5 percent.

In manufacturing, the preliminary productivity changes in the second quarter were: 4.9 percent in manufacturing, 7.0 percent in durable goods manufacturing, and 2.9 percent in nondurable goods manufacturing.

Manufacturing productivity grew 4.9 percent in the second quarter, compared with a 9.7-percent rise (as revised) in the first quarter. Output rose 4.1 percent in the second quarter of 2002 and hours of all persons fell 0.8 percent. 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. Second-quarter measures are summarized in table A and appear in detail in tables 1 through 5.

The data in this release reflect the regular multi-year GDP revisions released by the Bureau of Economic Analysis of the U.S. Department of Commerce on July 31. They also reflect the annual benchmark revision to the BLS establishment survey data and revisions to hours series released by BLS on June 7. All employment and hours series incorporate new information on seasonal patterns. See Revised Measures. Appendix tables 1-6 show revised historical series.

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 first quarter to the second quarter of 2002, business sector output per hour increased at a 1.4-percent annual rate. Output rose 0.3 percent and hours of all persons engaged in the sector fell 1.1 percent (seasonally adjusted annual rates). As revised, labor productivity grew 8.3 percent in the first quarter of 2002, when output increased 5.9 percent and hours decreased 2.2 percent (table 1).

Hourly compensation increased 3.9 percent in the second quarter and 3.8 percent in the first quarter of 2002 (seasonally adjusted annual rates). This measure includes wages and salaries; vacation and other paid leave; bonuses, stock options, and other supplements; employer contributions to employee benefit plans; and taxes. Real hourly compensation, which takes into account changes in consumer prices, rose at a 0.5-percent annual rate during the second quarter of 2002, after rising 2.3 percent during the previous quarter.

Unit labor costs, which reflect changes in both hourly compensation and productivity, increased 2.4 percent during the second quarter of 2002. These costs had fallen 4.2 percent in the first quarter. The implicit price deflator for the business sector, which reflects changes in unit labor costs and unit nonlabor payments, increased 0.6 percent in the second quarter and 0.3 percent in the first quarter of 2002.

Nonfarm business

Productivity increased 1.1 percent in the nonfarm business sector during the second quarter of 2002, as output edged up 0.5 percent and hours of all persons declined 0.7 percent (seasonally adjusted annual rates). Output per hour grew at an 8.6 percent annual rate in the first quarter of 2002, as output increased 6.2 percent and hours decreased 2.2 percent (table 2). The first-quarter productivity gain was the largest in this sector since the second quarter of 1983, when output per hour increased 9.9 percent.

Hourly compensation in the nonfarm business sector increased 3.6 percent in both the first and second quarters of 2002. When the rise in consumer prices is taken into account, real hourly compensation for the second quarter of 2002 rose 0.2 percent.

Unit labor costs increased 2.4 percent in the second quarter of 2002, after falling 4.6 percent during the first quarter. The implicit price deflator for nonfarm business output grew 1.4 percent in the second quarter and declined 0.2 percent in the first quarter of 2002.

Manufacturing

Productivity increased 4.9 percent in manufacturing, as output grew 4.1 percent and hours of all persons declined 0.8 percent (seasonally adjusted annual rates). In the previous quarter, productivity rose 9.7 percent, reflecting an increase of 3.0 percent in output and a drop of 6.1 percent in hours. Growth in second-quarter productivity differed in the durable and nondurable goods sectors. In durable goods, productivity rose 7.0 percent as output rose 6.1 percent and hours of all persons fell 0.8 percent. The drop in hours reflected an employment decline of 1.8 percent and a rise of 1.0 percent in average weekly hours at work. In nondurable goods, second- quarter productivity increased by 2.9 as output grew 1.9 percent and hours declined 0.9 percent (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers increased 3.0 percent during the second quarter, reflecting growth of 2.8 percent in durable goods and 3.5 percent in nondurable goods. When the increase in consumer prices is taken into account, the real hourly compensation of all manufacturing workers declined 0.4 percent in the second quarter, after rising 5.4 percent in the first quarter.

Unit labor costs in manufacturing dropped 1.8 percent in the second quarter, marking the fourth consecutive decline in the series. Reflecting the differing growth rates in productivity and hourly compensation in the second quarter, unit labor costs grew dissimilarly in the two manufacturing sectors. Unit labor costs fell 3.9 percent in durable goods manufacturing and rose 0.6 percent in nondurable goods manufacturing. The change in unit labor costs is roughly equal to the change in hourly compensation less the change in productivity.

Revised Measures

Current and previous measures for the first quarter of 2002 for the business, nonfarm business, and manufacturing sectors are compared in table B. In the business and nonfarm business sectors, productivity, output, and hours movements were similar to those reported on May 31. Hourly compensation grew more, and unit labor costs fell less, than reported on May 31, based on information then available. In manufacturing, productivity growth was slightly higher, primarily as a result of a downward revision to hours. Unit labor costs fell considerably less than originally reported, reflecting a sharp upward revision to hourly compensation.

Current and previous changes in the annual measures for the business, nonfarm business, and manufacturing sectors are compared in table C. Output data for the business and nonfarm business sectors and the compensation series for all sectors incorporate the revisions of the national income and product accounts produced by the Bureau of Economic Analysis, U.S. Department of Commerce. Labor input measures have been revised to reflect the annual benchmarking of employment levels derived from the monthly Current Employment Statistics (CES) program that occurred on June 7. Updated seasonal adjustment factors also have been incorporated into the labor input measures beginning in 1997. Appendix tables 1-6 present quarterly and annual measures for all sectors for 1997-99.

Revised measures of real output for the manufacturing, durable manufacturing, and nondurable manufacturing sectors are now available. These measures incorporate the results of the 2000 Annual Survey of Manufactures (ASM). Manufacturing output data for earlier years reflect a number of revisions to data from the ASM and other series, including industry price indexes. In addition, methods used to estimate the intra-sector flows of output have been improved. Updated measures of multifactor productivity for manufacturing industries through 2000 will be available later.

In the business and nonfarm business sectors, productivity was revised down in both 2000 and 2001. Both output and hours of all persons were revised downward, with the revisions in output being larger than those in hours. In 2000, upward revisions in compensation, combined with the lower productivity, resulted in higher unit labor costs in both sectors than before the revisions. In 2001, however, unit labor costs in the business and nonfarm business sectors were revised down, as the lower productivity rates were more than offset by sharp downward revisions to hourly compensation.

In manufacturing, output and productivity were revised down in 1998, 2000, and 2001. As a result, unit labor costs were revised up in 1998 and 2000, but, in 2001, sharply lower estimates of hourly compensation more than offset the small downward revision to productivity and unit labor costs were lower than previously reported. Output and productivity were revised up for 1999, resulting in a downward revision in unit labor costs.

The downward revisions to productivity in 2000 and 2001 lowered the 1990- 2001 average annual rate of growth in both the business and the nonfarm business sectors by 0.1 percentage point. For the business sector, productivity increased 2.0 percent a year over the past decade--substantially faster than the 1.5-percent growth rate for the 1973-90 period. In nonfarm businesses, productivity grew 1.9 percent a year between 1990 and 2001, up from 1.3 percent between 1973 and 1990. In manufacturing, the rate of growth between 1990 and 2001 was reduced by 0.2 percentage point, to 3.5 percent per year, up from the 2.5 percent annual rate of growth in the 1973-90 period.

Effective with the release of preliminary third-quarter 2002 data on Nov. 7, BLS will begin to issue revised measures for hourly compensation and unit labor costs for the previous two quarters. This revision practice will be followed whenever preliminary quarterly estimates are first announced. This change is in accordance with the announcement by the Bureau of Economic Analysis of their new revision schedule for wage and salary data. See "National Income and Product Accounts" (BEA 02-23), released July 31.

Revised measures: Nonfinancial Corporations

Productivity and cost measures for the first quarter for nonfinancial corporations also were revised to incorporate more recent information than was available on May 31. Productivity was revised down, reflecting the downward revision to output. Unit labor costs showed less of a decline than originally reported, reflecting the lower productivity growth and an upward revision to hourly compensation. Unit profits were revised down to show a slight decline; they had originally showed an increase (table D).