2002 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 2002

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 2002. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were:

4.3 percent in the business sector and 4.0 percent in the nonfarm business sector.

Productivity increased 4.3 percent in the business sector, as output grew 4.1 percent and hours declined 0.1 percent. The 4.0 percent increase in nonfarm business productivity also reflected a 4.1 percent growth in output, but a 0.1 percent rise in nonfarm business hours (table A).

In manufacturing, productivity increases in the third quarter were:

5.9 percent in manufacturing, 8.8 percent in durable goods manufacturing, and 2.0 percent in nondurable goods manufacturing.

The increase in manufacturing productivity compares with a 4.2-percent rise 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.

Effective with today's release, measures of hourly compensation and unit labor costs will be revised for the previous two quarters when preliminary estimates for a new quarter are released. Previously, only the most recent quarter of data was revised. For nonfinancial corporations, measures of productivity and output are also subject to an additional quarter of revisions.

Business

From the second quarter to the third quarter of 2002, business sector productivity increased at a 4.3 percent annual rate. Output increased 4.1 percent, while hours of all persons engaged in the sector declined 0.1 percent (seasonally adjusted annual rates). After revisions, second-quarter productivity in the business sector rose 1.8 percent, reflecting a 0.6- percent rise in output and a 1.2-percent decline in hours (tables B and 1).

Hourly compensation increased at an annual rate of 5.2 percent during the third quarter of 2002. Revised results show that hourly compensation increased 4.2 percent in the second quarter and 3.0 percent in the first quarter of 2002 (seasonally adjusted annual rates). 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 3.2 percent in the third quarter of 2002.

Unit labor costs, which reflect changes in both hourly compensation and productivity, increased at a 0.9-percent annual rate during the third quarter. These costs had increased 2.4 percent in the second quarter, following a decrease of 4.9 percent in the first quarter of 2002 (as revised). The implicit price deflator for the business sector increased 0.6 percent during the third quarter of 2002, about the same as the 0.7 percent increase in the previous quarter.

Nonfarm business

Productivity in the nonfarm business sector grew at a 4.0-percent annual rate during the third quarter of 2002. This increase in output per hour occurred as output increased 4.1 percent and hours of all persons edged up 0.1 percent (seasonally adjusted annual rates). The small rise in hours reflects a 0.6-percent increase in employment combined with a 0.5-percent decline in average weekly hours at work. Nonfarm business productivity rose 1.7 percent in the second quarter of 2002, as output rose 0.9 percent and hours decreased 0.7 percent (table 2).

Hourly compensation increased at a 4.8 percent annual rate in the third quarter of 2002. When the rise in consumer prices is taken into account, real hourly compensation rose at a 2.9-percent annual rate during the July- September period. During the second quarter of 2002, real hourly compensation had risen 0.5 percent.

Unit labor costs increased 0.8 percent during the third quarter of 2002. In the second quarter, unit labor costs in the nonfarm business sector had increased 2.2 percent. The implicit price deflator for nonfarm business output rose 0.2 percent in the third quarter of 2002.

Manufacturing

Productivity increased 5.9 percent in manufacturing in the third quarter of 2002, as output grew 3.4 percent and hours of all persons fell 2.4 percent (seasonally adjusted annual rates). A 4.2 percent increase in labor productivity was recorded in the previous quarter, reflecting a 3.5-percent increase in output and a 0.7-percent decline in hours. Total manufacturing output has increased in each of the last three quarters, after having fallen in each of the six previous quarters. In durable goods, productivity grew 8.8 percent in the third quarter as output increased 4.5 percent and hours of all persons fell 4.0 percent. Productivity increased 2.0 percent in nondurable goods, as output rose 2.1 percent and hours of all persons increased 0.1 percent (tables 3, 4, and 5).

Hourly compensation of manufacturing workers increased an average of 4.5 percent during the third quarter, the largest increase in this series since the third quarter of 2000, when it grew 9.5 percent (seasonally adjusted annual rates). Hourly compensation grew 4.4 percent in durable goods and 5.0 percent in nondurable goods in the third quarter of 2002. When the increase in consumer prices is taken into account, real hourly compensation in total manufacturing rose 2.6 percent in the third quarter.

Unit labor costs in manufacturing decreased 1.3 percent in the third quarter of 2002. This was the fifth consecutive quarterly decline in these costs. In the durable goods sector, unit labor costs in the third quarter fell 4.1 percent. Unit labor costs rose 2.9 percent in the nondurable goods sector.

Revised Measures

Current and previous measures for the first and second quarters of 2002 for the business, nonfarm business, and manufacturing sectors are compared in table B. In the business and nonfarm business sectors, growth in output and productivity is slightly higher in the second quarter than reported on Sept. 5, based on information then available. In the first quarter of 2002, growth in hourly compensation in all of these sectors was revised down substantially, which resulted in larger declines in unit labor costs.

Revised measures: Nonfinancial Corporations

Productivity and cost measures for nonfinancial corporations for the first and second quarters of 2002 also were revised to incorporate more recent information than was available on Sept. 5.

Productivity and output in this sector were revised up for the second quarter of 2002. Productivity grew at an annual rate of 5.9 percent, compared with the increase of 5.0 percent published Sept. 5. Hourly compensation was revised up much less than output per hour, so unit labor costs fell more, 1.3 percent, than the 0.8-percent decline reported at that time. Unit profits rose 0.9 percent in the second quarter of 2002 compared with the preliminary estimate of a 3.7- percent drop. Nonfinancial corporate output, productivity, and hourly compensation grew less during the first quarter of 2002 than reported Sept. 5. Because hourly compensation was revised down more than productivity, unit labor costs were revised down as well (tables C and 6).

Second quarter 2002

First quarter 2002