2003 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 2003

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 2003. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were:

7.4 percent in the business sector and 8.1 percent in the nonfarm business sector.

Productivity increased 7.4 percent in the business sector, as output grew 8.8 percent and hours increased 1.3 percent. The 8.1 percent increase in nonfarm business productivity also reflected an 8.8 percent growth in output, with a 0.7 percent rise in nonfarm business hours (table A).

In manufacturing, productivity increases in the third quarter were:

8.6 percent in manufacturing, 14.7 percent in durable goods manufacturing, and 2.3 percent in nondurable goods manufacturing.

The increase in manufacturing productivity compares with a 3.1-percent rise reported for the previous quarter (as revised). 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. 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 the second quarter to the third quarter of 2003, business sector productivity increased at a 7.4 percent annual rate. Output increased 8.8 percent, while hours of all persons engaged in the sector increased 1.3 percent (seasonally adjusted annual rates). The output increase was the largest since the fourth quarter of 1992, when output grew at a 9.3 percent annual rate. After revisions, productivity in the business sector also rose 7.4 percent in the second quarter of 2003, reflecting a 4.5-percent rise in output and a 2.7-percent decline in hours (tables B and 1).

Hourly compensation in the business sector increased at an annual rate of 2.4 percent during the third quarter of 2003. Revised results show that hourly compensation increased 4.1 percent in the second quarter (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, edged up 0.1 percent in the third quarter of 2003.

Unit labor costs, which reflect changes in both hourly compensation and productivity, decreased at a 4.6-percent annual rate during the third quarter. These costs had decreased 3.1 percent in the second quarter of 2003 (as revised). The implicit price deflator for the business sector increased 1.8 percent during the third quarter of 2003, following a 1.0 percent increase in the previous quarter.

Nonfarm business

Productivity in the nonfarm business sector grew at an 8.1-percent annual rate during the third quarter of 2003. Output grew 8.8 percent in the third quarter, faster than at any time since the fourth quarter of 1992, when it increased 9.8 percent (seasonally adjusted annual rates). Hours worked in the nonfarm business sector rose 0.7 percent, reflecting a 0.3-percent gain in employment combined with a 0.4-percent increase in average weekly hours at work. After revisions, nonfarm business productivity increased 7.0 percent in the second quarter of 2003, as output grew 4.6 percent and hours declined 2.2 percent (table 2).

Hourly compensation increased at a 3.1 percent annual rate in the third quarter of 2003. When the rise in consumer prices is taken into account, real hourly compensation rose at a 0.8-percent annual rate during the July- September period. During the second quarter of 2002, real hourly compensation had risen 3.0 percent.

Unit labor costs fell 4.6 percent during the third quarter of 2003. In the second quarter, unit labor costs in the nonfarm business sector had decreased 3.2 percent. The implicit price deflator for nonfarm business output rose 1.5 percent in the third quarter of 2003.

Manufacturing

Productivity increased 8.6 percent in manufacturing in the third quarter of 2003, as output grew 2.9 percent and hours of all persons fell 5.2 percent (seasonally adjusted annual rates). Total manufacturing output had decreased in each of the previous three quarters. The 3.1 percent increase in labor productivity in the second quarter of 2003 reflected a 2.9-percent decrease in output and a 5.8-percent drop in hours. In durable goods, productivity grew 14.7 percent in the third quarter as output increased 7.8 percent and hours of all persons fell 6.0 percent. The gain in durable manufacturing output per hour was the largest since the first quarter of 1971, when it increased 15.1 percent. Productivity increased 2.3 percent in nondurable goods, as output declined 1.8 percent and hours of all persons fell 4.0 percent (tables 3, 4, and 5).

Hourly compensation of manufacturing workers increased an average of 4.3 percent during the third quarter of 2003, reflecting increases of 3.7 percent in durable goods and 5.3 percent in nondurable goods. When the increase in consumer prices is taken into account, real hourly compensation in total manufacturing rose 1.9 percent in the third quarter.

Unit labor costs in manufacturing decreased 4.0 percent in the third quarter of 2003, after increasing 1.9 percent in the second quarter. In the durable goods sector, unit labor costs in the third quarter fell 9.6 percent, the largest decline in these costs since the second quarter of 2000, when they dropped 13.0 percent. Unit labor costs rose 2.9 percent in the nondurable goods sector in the third quarter of 2003, about the same as the 2.7 percent rise one quarter earlier.

Revised Measures

Current and previous measures for the first and second quarters of 2003 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 were slightly higher in the second quarter than reported on Sept. 4, based on information then available. In the manufacturing sector, output declined more, and productivity increased less, than previously reported. In the first quarter of 2003, growth in hourly compensation in all of these sectors was revised down, which resulted in smaller increases in unit labor costs.

Revised measures: Nonfinancial Corporations

Productivity and cost measures for nonfinancial corporations for the first and second quarters of 2003 also were revised to incorporate more recent information than was available on Sept. 4.

Productivity grew at an annual rate of 8.4 percent in second-quarter 2003, compared with the increase of 8.1 percent published Sept. 4. This was largely the result of an upward revision in output growth from 5.9 percent to 6.3 percent. Hourly compensation was revised down slightly, and unit labor costs fell more, 4.3 percent, than the 3.8-percent decline reported previously. Unit profits grew at a 61.6 percent annual rate in the second quarter of 2003, compared with the preliminary estimate of 55.5 percent. Nonfinancial corporate output, productivity, and hourly compensation grew less during the first quarter of 2003 than reported Sept. 4. Because hourly compensation was revised down more than productivity, unit labor costs were revised down as well (tables C and 6).

Second quarter 2003

First quarter 2003

Upcoming changes

In order to provide users with information on long-term productivity and cost trends reflecting the release of the revised national income and product accounts by the Bureau of Economic Analysis, U.S. Department of Commerce, on Dec. 10, 2003, revised historical measures of productivity and costs for all sectors will be prepared by the BLS. Revised data for the manufacturing and nonfinancial corporate sectors also will reflect conversion from the 1987 Standard Industrial Classification to the 2002 North American Industry Classification System. On Jan. 7, 2004, the BLS will post revised historical measures through the fourth quarter of 2002 on its web site http://www.bls.gov/lpc/ , but will not incorporate these data into the LABSTAT database at that time. In keeping with usual practices, revised data for the second and third quarters of 2003 will be reported in the "Productivity and Costs" release of Feb. 5, 2004, which also will include revised first-quarter 2003 data. All revised historical data will be incorporated into the LABSTAT database at the time of that release.