2003 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 2003

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

8.6 percent in the business sector, and 9.4 percent in the nonfarm business sector.

In both sectors, upward revisions to productivity reflect much larger upward revisions to output than to hours.

In manufacturing, revised productivity increases in the third quarter were:

9.0 percent in manufacturing, 14.8 percent in durable goods manufacturing, and 3.1 percent in nondurable goods manufacturing.

Productivity in the manufacturing sector also rose more rapidly than was reported on Nov. 6. Output and hours both were revised up but the revisions to output were larger than those to hours in the sector. 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.

Revised historical measures through 2002 will be available on the BLS web site on Jan. 7, 2004, reflecting the release of revised source data. For more information see "Upcoming changes."

Business

From the second quarter to the third quarter of 2003, business sector productivity rose at an annual rate of 8.6 percent, as output increased 10.2 percent and hours of all persons engaged in the sector rose 1.4 percent (table 1). This is only the second increase in hours since they began falling in the second quarter of 2000. The output increase was the largest since an 11.2-percent rise in the first quarter of 1984.

Hourly compensation rose 2.3 percent during the third quarter of 2003, less than the 4.1-percent increase in the second 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, was unchanged in the third quarter of 2003.

Unit labor costs decreased 5.8 percent last quarter, a bigger drop than the 3.1-percent decline in the previous quarter. Unit labor costs last rose in the first quarter of the year, when they increased 0.5 percent. The implicit price deflator for the business sector, which reflects changes both in unit labor costs and in unit nonlabor payments, increased at a 1.7 percent annual rate in the third quarter of 2003.

Nonfarm business

Output per hour of all persons in the nonfarm business sector increased 9.4 percent during the third quarter of 2003 (table 2). Output rose 10.3 percent while hours of all persons increased 0.8 percent. The output increase was the largest since the third quarter of 1983, when it rose 11.5 percent. In the nonfarm business sector, hours last increased in the first quarter of 2000, when they rose 1.6 percent.

Hourly compensation grew 3.0 percent in the third quarter of 2003, down somewhat from the 3.6-percent increase in the previous quarter. When the rise in consumer prices is taken into account, real hourly compensation rose 0.7 percent in the third quarter of 2003.

Unit labor costs fell 5.8 percent in the third quarter, following a 3.2 percent decrease one quarter earlier. The implicit price deflator for nonfarm business rose 1.5 percent in the third quarter of 2003.

Manufacturing

Productivity increased 9.0 percent in manufacturing in the third quarter of 2003, as output increased 3.5 percent and hours of all persons dropped 5.0 percent (seasonally adjusted annual rates). Hours of all persons in manufacturing have fallen for thirteen consecutive quarters. In durable goods industries, productivity rose by 14.8 percent, reflecting an 8.1- percent rise in output and a decline of 5.9 percent in hours. Productivity grew much more slowly in the nondurable goods industries, 3.1 percent, as output fell 0.8 percent and hours fell more, 3.8 percent (tables 3, 4, and 5).

The hourly compensation of all manufacturing workers rose 4.1 percent during the third quarter of 2003. In durable goods manufacturing, hourly compensation increased 3.5 percent and in nondurable goods manufacturing it grew 5.3 percent. When the increase in consumer prices is taken into account, real hourly compensation for all manufacturing workers rose 1.7 percent in the third quarter.

Unit labor costs in manufacturing fell 4.5 percent in the third quarter after rising 2.2 percent in the previous quarter. Unit labor costs dropped 9.9 percent in durable goods manufacturing in the third quarter and they rose 2.1 percent in nondurable goods manufacturing.

Nonfinancial Corporations

Third-quarter 2003 measures of productivity and costs also were released for nonfinancial corporations (tables B and 6). Output per all-employee hour grew at a 9.2 percent annual rate, somewhat faster than the 8.4 percent increase in the previous quarter. Output increased 8.9 percent in the third quarter, and hours of all employees fell 0.2 percent (seasonally adjusted annual rates). The third quarter increase in output was the largest since a 9.5-percent rise in the first quarter of 2000 while the decrease in employee hours was the smallest since the third quarter of 2000, when they fell 0.1 percent. Employee hours have fallen in fourteen consecutive quarters. 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 3.0 percent in the third quarter, down from the second quarter increase of 3.7 percent. When the rise in consumer prices is taken into account, real hourly compensation increased 0.7 percent in the third quarter.

Unit labor costs for the sector dropped 5.6 percent in third quarter 2003. Unit nonlabor costs also fell, 2.4 percent, while unit profits rose at a 60.9 percent annual rate in the third quarter. 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-- increased 0.6 percent.

Revised Measures

Current and previous measures for the third quarter of 2003 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. 6, based on the information available at that time. Unit labor cost measures for these sectors showed correspondingly larger declines. Similarly, in manufacturing rates of growth in output and productivity were revised up in the third quarter and unit labor costs show a larger decline than was reported last month.

Third quarter 2003

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 and 2002 also were affected. In both years, output shows less of a decline than it had previously. Productivity was revised up by a corresponding amount in both years. The same revisions affected unit labor costs; they fall more in 2002 and increase less in 2001 than previously published. The output measures for more recent quarters, based on those published by the Board of Governors of the Federal Reserve System, were changed to incorporate additional and revised source data and updated information on seasonal trends. (See Federal Reserve statistical release G.17 (419), "Industrial Production and Capacity Utilization: the 2003 Annual Revision," Nov. 10, 2003.)

Annual average 2002

Annual average 2001

Although the Federal Reserve revised and reclassified its indexes of industrial production (IIP) back to 1972 when they released their historical revisions in December 2002, the Bureau of Labor Statistics has not yet incorporated these changes into its historical quarterly measures for years before 2001. When revised historical productivity data are released on Jan. 7, 2004, the updated information from the IIP will be incorporated into the quarterly measures.