2003 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 2003

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 2003. The preliminary seasonally adjusted annual rates of productivity change in the second quarter were:

6.1 percent in the business sector and 5.7 percent in the nonfarm business sector.

In the business sector, productivity grew as output rose 3.2 percent and hours dropped 2.7 percent. A similar pattern occurred in nonfarm businesses, output grew 3.4 percent and hours fell 2.2 percent.

In manufacturing, the preliminary productivity changes in the second quarter were:

4.2 percent in manufacturing, 3.8 percent in durable goods manufacturing, and 4.4 percent in nondurable goods manufacturing.

Manufacturing productivity grew 4.2 percent in the second quarter reflecting declines in output and hours of 2.1 and 6.1 percent, respectively. 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. Second-quarter measures are summarized in table A and appear in detail in tables 1 through 5.

The data in this release reflect the annual benchmark revision and other changes to the BLS establishment survey data released by BLS on June 6. In addition, revisions to the Current Population Survey first released by BLS on Feb. 7 have been fully incorporated into the measures. The employment and hours series also incorporate new information on seasonal patterns and new hours worked to hours paid ratios. See Revised Measures. Appendix tables 1- 4 show revised historical series for the 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.

Business

From the first quarter to the second quarter of 2003, business sector output per hour increased at a 6.1-percent annual rate. Output rose 3.2 percent and hours of all persons engaged in the sector fell 2.7 percent (seasonally adjusted annual rates). As revised, labor productivity grew 2.7 percent in the first quarter of 2003, when output increased 1.4 percent and hours decreased 1.2 percent (table 1).

Hourly compensation increased 3.9 percent in the second quarter, less than the 4.8 percent gain in the first quarter of 2003 (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 3.3-percent annual rate during the second quarter of 2003, after rising 0.9 percent during the previous quarter. The second quarter increase of 3.3 percent was the largest in the business sector since a 4.7-percent increase in the third quarter of 2000.

Unit labor costs, which reflect changes in both hourly compensation and productivity, fell 2.0 percent during the second quarter of 2003 after rising 2.0 percent in the previous quarter. The implicit price deflator for the business sector, which reflects changes in both unit labor costs and unit nonlabor payments, increased 0.9 percent in the second quarter and 1.6 percent in the first quarter of 2003.

Nonfarm business

Productivity increased 5.7 percent in the nonfarm business sector during the second quarter of 2003, as output rose 3.4 percent and hours of all persons declined 2.2 percent (seasonally adjusted annual rates). Output per hour grew at a 2.1 percent annual rate in the first quarter of 2003, as output increased 1.4 percent and hours decreased 0.7 percent (table 2).

Hourly compensation in the nonfarm business sector increased 3.5 percent in second quarter 2003, down from the 4.1-percent rise one quarter earlier. When the rise in consumer prices is taken into account, real hourly compensation for the second quarter of 2003 rose 2.9 percent. As in the larger business sector, the second quarter increase in real hourly compensation was the largest since the third quarter of 2000, when it rose 5.0 percent.

Unit labor costs decreased 2.1 percent in the second quarter of 2003, after rising 2.0 percent during the first quarter. The implicit price deflator for nonfarm business output grew 0.8 percent in the second quarter, down from the 1.4-percent increase in the previous quarter.

Manufacturing

Productivity increased 4.2 percent in manufacturing, as output fell 2.1 percent and hours of all persons declined 6.1 percent (seasonally adjusted annual rates). In the previous quarter, productivity rose 4.9 percent, reflecting decreases in output and hours of 0.7 and 5.3 percent, respectively. In durable goods, productivity rose 3.8 percent in the second quarter as output dropped 3.1 percent and hours of all persons fell 6.7 percent. In nondurable goods, second-quarter productivity increased by 4.4 as output declined 1.0 percent and hours fell 5.2 percent (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers rose 5.4 percent during the second quarter, reflecting growth of 5.2 percent in durable goods and 5.8 percent in nondurable goods. When the increase in consumer prices is taken into account, the real hourly compensation of all manufacturing workers increased by 4.8 percent in the second quarter, after rising 3.3 percent one quarter earlier.

Unit labor costs in manufacturing grew 1.2 percent in the second quarter. In durable goods industries, unit labor costs rose 1.4 percent and in nondurable goods industries, they increased 1.3 percent. 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 2003 for the business, nonfarm business, and manufacturing sectors are compared in table B. In the business and nonfarm business sectors, productivity was revised up slightly from the numbers reported on June 4. This occurred as both output and hours were revised down, hours more than output. Hourly compensation and unit labor costs grew more than reported on June 4, based on information then available. In manufacturing, productivity growth grew substantially faster than reported on June 4 as a result of a sharp downward revision to hours. Hourly compensation also shows a steep upward revision in the first quarter. Unit labor costs were revised down, reflecting the fact that the upward revision to productivity was larger than the upward revision to hourly compensation.

Hours data for the business and nonfarm business sectors now incorporate all of the changes made to the Current Establishment Statistics (CES) data reported on June 6 and the Current Population Survey (CPS) data reported on Feb. 7. They also include a new method of adjusting hours paid to hours at work for the period following 2000, when the Bureau's last Hours at Work Survey was conducted. All of the data incorporate new information on seasonal patterns. Appendix tables 1 and 2 present quarterly and annual measures for the business and nonfarm business sectors for 1998-2000 and appendix tables 3 and 4 show annual indexes for all years beginning in 1947.

In manufacturing, only revised data for recent years were used to prepare the productivity and cost measures; these were linked to the SIC- based hours series previously published by the BLS. For employees in manufacturing establishments, new information adjusted to the old SIC basis was used beginning with the second quarter of 2001. Small revisions to the hours of self-employed workers that reflect the most recent information on seasonal trends extend back to 1998.

The historical revisions to the employment and average weekly hours data from the CES change the indexes of employment and hours in the business and nonfarm business sectors for all years. The CES data incorporate several major changes, as described in release USDL 03-281 (ftp://ftp.bls.gov/pub/news.release/History/empsit.06062003.news). These include the conversion to NAICS, the completion of the CES sample redesign, and annual benchmark revisions.

The changes to the CPS data used in the productivity measures were primarily related to the new levels introduced with the use of weights from the 2000 population census. For the purpose of measuring productivity, the revisions to employment and hours in 2000 due to new population weights were interpolated back to 1990 (when the previous population census was conducted). New information on employment and hours levels for the farm sector was introduced beginning with January 2000; the 1947-1999 measures were adjusted to this level.

Productivity and cost measures were revised to reflect new measures of hours at work to hours paid. The Bureau's Hours at Work Survey was discontinued following the collection of data for 2000. New measures based on information from the National Compensation Survey, which collects data on hours worked and employer leave practices, have been linked to the levels beginning with the first quarter of 2001. A description of these measures is available at http://www.bls.gov/lpc/lprhws/lprhwhp.pdf.

Current and previous changes in the annual measures for the business, nonfarm business, and manufacturing sectors are compared in table C. In the business and nonfarm business sectors, productivity was revised up in both 2001 and 2002, reflecting the downward revisions to hours of all persons. The hourly compensation data also were revised upward by a similar amount. As a result, unit labor costs in both years are about the same as they were in the previously published data. Similarly, in manufacturing, productivity and hourly compensation were revised up in 2001 and 2002 as a result of downward revisions to hours. Unit labor costs were revised only slightly downward in 2002 and were unchanged in 2001.

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 June 4. Productivity was revised up, reflecting both an upward revision to output and a larger drop in employee hours. Hourly compensation was revised up. However, the upward revision to productivity was much larger than the upward revision to hourly compensation and unit labor costs were revised down. Unit profits also were revised up (table D).

Productivity and cost measures for the fourth quarter of 2002 also were revised to incorporate more recent information on output, hours, and employee compensation. Fourth quarter 2003 productivity did not rise as rapidly as reported on June 4, reflecting a downward revision to output that was much larger than the downward revision to hours. Hourly compensation also was revised down and unit labor costs show a larger decline than originally reported.

The hours measures for most employees of nonfinancial corporations have been revised only beginning with the second quarter of 2001. The output and compensation measures for nonfinancial corporations are not yet available on a NAICS basis so BLS is continuing to use the levels reported on an SIC basis for the months prior to April 2001. In order to capture the CES benchmark to the Covered Employment and Wages (CEW), CES data for April 2001 through March 2003 reported on a NAICS basis are converted back to the SIC using bridge tables published for first quarter 2001 CEW data. In addition, estimates of hours for employees working on incorporated farms were revised back to 1958. The corporate farm sector has historically been small and the changes in productivity and cost movements due to the incorporation of this revision are very small. As a result of the various revisions, hours in the nonfinancial corporate sector now show larger drops in 2001 and 2002 than previously published. The new measures are shown in table 6.

First quarter 2003

Fourth quarter 2002

Upcoming changes

Historical measures of output and compensation for all sectors, along with the conversion of the manufacturing and nonfinancial corporate sectors from the 1987 Standard Industrial Classification (SIC) to the 2002 North American Industry Classification System (NAICS), will be prepared following the release of the revised national income and product accounts in December. On January 7, 2004, the BLS will post revised productivity and cost measures through fourth quarter, 2002 on its web site. More specific information will be announced later this year.