2002 Fourth 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.

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 fourth quarter and for the full year 2002. The seasonally adjusted annual rates of productivity change in the fourth quarter and the annual average changes were:

Business sector -0.7 4.7 Nonfarm business sector -0.2 4.7

In the fourth quarter, productivity dipped 0.7 percent in the business sector as output increased 0.9 percent but hours at work increased more, 1.5 percent (seasonally adjusted annual rates). A similar pattern of growth occurred in the nonfarm business sector where output rose 0.8 percent, hours increased by 1.0 percent, and productivity fell 0.2 percent. On an annual average basis, productivity in both the business and nonfarm business sectors rose 4.7 percent in 2002. Fourth-quarter productivity and related measures are summarized in table A and annual average data in table B. Detailed information is presented in tables 1 through 5.

In the manufacturing sector, increases in productivity were:

Manufacturing sector 0.7 4.6 Durable goods manufacturing 3.4 5.7 Nondurable goods manufacturing -2.5 2.8

Manufacturing productivity grew 0.7 percent in the fourth quarter, reflecting a drop in output of 2.4 percent and a larger decline, 3.0 percent, in hours of all persons. On an annual average basis, output per hour in the manufacturing sector posted a 4.6-percent increase in 2002. Output and hours in manufacturing, which includes about 15 percent of U.S. business-sector employment, tend to vary more from quarter to quarter than data for the aggregate business and nonfarm business sectors.

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.

THIRD-TO-FOURTH QUARTER CHANGES, 2002

Business

Productivity in the business sector declined by 0.7 percent in the fourth quarter of 2002, reflecting modest increases of 0.9 percent in output and 1.5 percent in hours of all persons (seasonally adjusted annual rates). Although business sector output has increased for five consecutive quarters, this was the first increase in hours since the first quarter of 2001, when they rose 0.4 percent. Revised data for the third quarter of 2002 show that output per hour rose 5.8 percent, reflecting an output increase of 5.3 percent and a decline of 0.5 percent in hours.

Hourly compensation increased 4.3 percent in the fourth quarter of 2002, following a 5.7-percent increase one quarter earlier. 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, grew at an annual rate of 1.8 percent during the fourth quarter of 2002. This measure rose 3.8 percent in the third quarter.

The unit labor cost measure, which relates hourly compensation to output, rose 5.0 percent in the fourth quarter. During the third quarter of 2002, unit labor costs were unchanged. The implicit price deflator for business output, which reflects changes in both unit labor costs and unit nonlabor payments, increased 1.5 percent in fourth quarter 2002.

Nonfarm business

In the nonfarm business sector, productivity declined by 0.2 percent in the fourth quarter of 2002. Output grew 0.8 percent and hours of all persons grew slightly faster, 1.0 percent (seasonally adjusted annual rates). Productivity increased 5.5 percent in the third quarter of 2002 (as revised), when output increased 5.2 percent and hours dropped 0.2 percent (table 2).

Hourly compensation in the nonfarm business sector rose 4.6 percent in the fourth quarter of 2002, down somewhat from the 5.4-percent rise of the third quarter. When the changes in consumer prices were taken into account, real hourly compensation increased 2.2 percent during the fourth quarter of 2002 and 3.4 percent one quarter earlier.

Unit labor costs rose 4.8 percent in the fourth quarter, after falling 0.1 percent in the third quarter of 2002. The implicit price deflator for nonfarm business output increased 1.3 percent in the fourth quarter of 2002, after increasing 0.1 percent one quarter earlier.

Manufacturing

Manufacturing productivity grew 0.7 percent (seasonally adjusted annual rate) in the fourth quarter of 2002 as output fell 2.4 percent and hours fell further, 3.0 percent (table 3). This was the first drop in manufacturing output in a year. Hours of all persons in manufacturing fell in each of the last 10 quarters and have dropped in 16 quarters over the past five years. In the third quarter, total manufacturing productivity increased 5.5 percent (as revised), reflecting a 3.0-percent rise in output and a 2.4-percent decrease in hours. In durable goods manufacturing, productivity rose 3.4 percent in the fourth quarter as output fell 1.6 percent and hours dropped 4.8 percent (table 4). Among nondurable goods manufacturers, productivity dropped 2.5 percent in the fourth quarter as output declined 2.9 percent but hours at work in the sector fell only 0.4 percent (table 5).

Average hourly compensation of manufacturing workers increased 5.3 percent in the fourth quarter of 2002, reflecting increases in hourly compensation of 6.2 percent in durable goods manufacturing and 4.3 percent in nondurable goods manufacturing. When the increase in consumer prices was taken into account, real hourly compensation in total manufacturing rose 2.9 percent.

Unit labor costs for the manufacturing sector rose 4.6 percent in fourth quarter 2002. In durable goods manufacturing, unit labor costs rose 2.7 percent. By contrast, unit labor costs of nondurable goods manufacturers rose 7.0 percent in the fourth quarter of 2002.

ANNUAL AVERAGE CHANGES, 2001-2002

Business

Business sector productivity increased 4.7 percent when the annual average for 2002 was compared with the annual average for 2001 (table B). Output increased 2.6 percent and hours of all persons engaged in the sector dropped 2.0 percent. Productivity had increased 1.1 percent in 2001, when output fell 0.2 percent and hours fell 1.3 percent. The 4.7-percent increase in 2002 is larger than the sharp increases of 1992 (3.9 percent) and 1983 (3.6 percent)--each two years following the last two business cycle peaks, when labor productivity frequently shows a rapid rise. In fact, the 4.7- percent increase in 2002 was the largest since 1950, when productivity rose 8.5 percent.

Hourly compensation in the business sector increased 2.9 percent in 2002, the same as the increase in 2001. However, because consumer prices rose less in 2002 than they had in the previous year, real hourly compensation increased more in 2002, 1.3 percent, than it had in 2001, when it rose 0.2 percent. Unit labor costs in the business sector fell 1.7 percent in 2002, the first annual decline in these costs since the early 1960s. (Unit labor costs fell 0.2 percent in 1963, and 0.1 percent in 1962.) The implicit price deflator for the business sector rose 0.4 percent in 2002 and 2.0 percent in 2001.

Nonfarm business

Productivity increased 4.7 percent in the nonfarm business sector during 2002, reflecting a 2.7-percent rise in output and a 2.0-percent decline in hours. During 2001, productivity had increased 1.1 percent in nonfarm business, as output dropped 0.1 percent and hours of all persons fell 1.2 per cent. As in the larger business sector, the 2002 productivity increase was the largest since 1950, when productivity rose 6.9 percent. It also was higher than the increases of 1992, when nonfarm business productivity rose 3.7 percent, and 1983, when nonfarm business productivity rose 4.5 percent.

In 2002, hourly compensation increased 2.8 percent, similar to the 2.7- percent rise in 2001. When the increase in consumer prices was taken into account, real hourly compensation rose 1.2 percent in 2002 and declined 0.1 percent in the previous year.

Unit labor costs in the nonfarm business sector dropped 1.8 percent in 2002, compared with a 1.6-percent increase in 2001. The last time annual unit labor costs fell in the nonfarm business sector was in 1983, when they dropped 0.2 percent. The implicit price deflator for nonfarm business rose 0.5 percent in 2002, less than it had in 2001, when it rose 1.9 percent.

Manufacturing

In manufacturing, labor productivity rose 4.6 percent in 2002, faster than it had grown in 2001, when it rose 0.8 percent. The 2002 increase occurred as output fell 1.0 percent and hours of all persons fell more sharply, 5.4 percent (table B). There was a 5.7-percent increase in durable goods manufacturing productivity, where output fell 1.4 percent and hours fell 6.6 percent. Nondurable goods manufacturing posted a more modest increase in productivity, 2.8 percent, as output decreased 0.6 percent and hours fell 3.4 percent.

Hourly compensation of manufacturing workers increased 3.8 percent in 2002, more than it increased in 2001, when hourly compensation rose 1.5 percent. In 2002, hourly compensation rose 4.1 percent in durable goods manufacturing and 3.5 percent in nondurable good manufacturing. Taking into account the rise in consumer prices, real hourly compensation in manufacturing rose 2.1 percent in 2002 after falling 1.2 percent one year earlier.

Unit labor costs in manufacturing fell in 2002, by 0.7 percent. This was the first annual drop in unit labor costs since 1999, when they decreased 1.1 percent. Unit labor costs in durable goods manufacturing declined 1.5 percent in 2002, compared with a 0.6-percent rise in unit labor costs in nondurable goods manufacturing.

Revised Measures

Current and previous measures for the third and second quarters of 2002 for the business, nonfarm business, and manufacturing sectors are compared in table C. In the business and nonfarm business sectors, productivity growth in the third quarter was higher than reported on Dec. 4, due to small upward revisions in output and slightly larger downward revisions to hours. In both sectors, hourly compensation in the third quarter grew more than reported in December. The upward revisions to productivity and hourly compensation nearly offset each other, and movements in unit labor costs were similar to those reported two months ago. In the second quarter of 2002, hourly compensation measures in the business and nonfarm business sectors were revised up by 0.1 percentage-point; unit labor costs in nonfarm businesses were revised up by the same amount.

In addition, corrections made to average weekly hours in the BLS Current Employment Statistics (CES) have caused some small revisions to the productivity and hourly compensation series beginning with the first quarter of 2000. (See http://stats.bls.gov/web/cesspec.htm for details of the CES corrections.)

Third-quarter productivity growth in the manufacturing sector was the same as reported on Dec. 4, as downward revisions to output and hours were the same. Hourly compensation grew 5.6 percent in the third quarter, more than the 4.4-percent figure reported in December. As a result, unit labor costs in the manufacturing sector grew 0.1 percent in the third quarter rather than falling 1.0 percent. A larger upward revision to second-quarter hourly compensation also changed the direction of the unit labor cost measure for that quarter. Manufacturing unit labor costs for the second quarter now show an increase of 0.7 percent.

In addition, quarterly measures of productivity, output, and unit labor costs for manufacturing were revised back to first quarter 2001 due to the incorporation of revised indexes of industrial production. The annual measures for 2001 also were affected; annual average productivity was revised to show an increase of 0.8 percent for the year, down from the 0.9-percent figure previously published. The output measures, based on those published by the Board of Governors of the Federal Reserve System, were changed to incorporate additional and revised source data, updated information on seasonal trends, and some improvements in measurement of real output. (See Federal Reserve statistical release G.17 (419), "Industrial Production and Capacity Utilization," Dec. 5, 2002.)

Although the Federal Reserve has revised and reclassified its indexes of industrial production (IIP) back to 1972, the Bureau of Labor Statistics has not yet incorporated these changes into its historical quarterly measures for years before 2001. Later in 2003, the BLS intends to adopt the 2002 North American Industry Classification System (NAICS) for its major sector productivity measures. At that time, the updated information from the IIP will be incorporated into the quarterly measures. Persons wishing information on the methods used to extend the output measures on the 1987 Standard Industrial Classification (SIC) basis beginning with first quarter 2001 may contact the Division of Major Sector Productivity at 202-691-5606 or email their question to dprweb@bls.gov.

Revised measures: Nonfinancial Corporations

Revised productivity and output measures for the third and second quarters for nonfinancial corporations also were announced today. In the third quarter, output and productivity increased less and hours fell more than reported on Dec. 4. Hourly compensation was revised up. This, combined with the downward revision to productivity, led to a rise in unit labor costs (table D). There was a small upward revision to hourly compensation data in the second quarter 2002.

Third quarter 2002

Second quarter 2002