2002 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 2002

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

5.4 percent in the business sector, and 5.1 percent in the nonfarm business sector.

In both sectors, upward revisions to productivity were primarily due to increases in output larger than originally reported.

In manufacturing, revised productivity increases in the third quarter were: 5.5 percent in manufacturing, 8.8 percent in durable goods manufacturing, and 1.3 percent in nondurable goods manufacturing.

Manufacturing productivity rose less than reported on November 7. This reflects both a small downward revision to output and a small upward revision 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.

Business

From second quarter to third quarter of 2002, business sector productivity rose at an annual rate of 5.4 percent, as output increased 5.2 percent and hours of all persons engaged in the sector dropped 0.2 percent (table 1). The decline in hours reflects an underlying increase in employment (0.4 percent) and a decline in average weekly hours (-0.6 percent). Average weekly hours worked by all persons in the sector also declined in the second quarter of 2002, by 0.3 percent, and dropped in ten of the last eleven quarters.

Hourly compensation increased 5.3 percent during the third quarter of 2002, up from the 4.2-percent rise in the previous quarter. 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 3.4 percent in the third quarter of 2002.

Unit labor costs edged down 0.1 percent last quarter and have fallen in four of the last five quarters. The implicit price deflator for the business sector, which reflects changes both in unit labor costs and in unit nonlabor payments, increased at a 0.4 percent annual rate in the third quarter of 2002, somewhat less than the 0.7-percent increase in the second quarter of 2002.

Nonfarm business

Output per hour of all persons in the nonfarm business sector increased 5.1 percent during the third quarter of 2002 (table 2). Output rose 5.1 percent while hours of all persons were unchanged. As in the larger business sector, employment rose (0.6 percent) while average weekly hours fell (0.6 percent). The third quarter productivity increase was higher than the 1.7- percent rise in the second quarter but lower than the increase registered in the first quarter of the year, 8.6 percent.

Hourly compensation grew at a 4.9 percent annual rate in the third quarter of 2002, up from the 3.9 percent increase in the previous quarter. When the rise in consumer prices is taken into account, real hourly compensation rose at a 3.0 percent annual rate in the third quarter of 2002.

Unit labor costs fell 0.2 percent in the third quarter, following a 2.2 percent increase one quarter earlier. The implicit price deflator for nonfarm business rose 0.1 percent in the third quarter of 2002.

Manufacturing

Productivity increased 5.5 percent in manufacturing in the third quarter of 2002, as output increased 3.2 percent and hours of all persons fell 2.2 percent (seasonally adjusted annual rates). In durable goods industries, productivity grew 8.8 percent as output rose 4.9 percent and hours dropped 3.5 percent. Productivity grew much more slowly in the nondurable goods industries, 1.3 percent, reflecting an output increase of 1.2 percent and a slight decline in hours, 0.1 percent (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers rose 4.4 percent during the third quarter of 2002. In durable goods manufacturing, hourly compensation rose 4.3 percent during the third quarter. The increase in nondurable goods manufacturing was 4.9 percent. When the increase in consumer prices is taken into account, real hourly compensation for all manufacturing workers rose 2.5 percent in the third quarter.

Unit labor costs in manufacturing fell 1.0 percent in the third quarter, continuing a series of quarterly declines in these costs that began in the third quarter of 2001. Unit labor costs dropped 4.2 percent in durable goods manufacturing and rose 3.5 percent in nondurable goods manufacturing.

Nonfinancial Corporations

Third-quarter 2002 measures of productivity and costs also were released for nonfinancial corporations (tables B and 6). Output per all-employee hour grew at a 5.7 percent annual rate, similar to the 5.8 percent increase in the previous quarter. Output increased 4.3 percent in the third quarter, and hours of all employees fell 1.3 percent (seasonally adjusted annual rates). This decrease in employee hours is the eighth consecutive drop in this sector. 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 in nonfinancial corporations increased 5.7 percent in the third quarter, more rapidly than in the second quarter when it rose 4.4 percent. When the rise in consumer prices is taken into account, real hourly compensation increased 3.7 percent in the third quarter and 1.0 percent in the second quarter.

Unit labor costs for the sector were unchanged in the third quarter. Unit nonlabor costs rose 1.1 percent and unit profits fell 10.4 percent in the third quarter of 2002. As a result of these movements, the implicit price deflator for the output of nonfinancial corporations--which reflects a weighted average of these three measures--dropped 0.6 percent. The implicit price deflator also fell in the previous three quarters.

Revised Measures

Current and previous measures for the third quarter of 2002 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 larger than those reported on Nov. 7, based on the information available at that time. Unit labor cost measures for these sectors are correspondingly lower and now show small declines. In manufacturing, rates of growth in output and productivity were revised down in the third quarter. Unit labor costs were revised up due to the downward output revision but still show a decline in the quarter.

On Nov. 26, 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 1999. The appendix table shows revised 1999 measures for output, productivity, and unit costs.