2003 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 2003. The seasonally adjusted annual rates of productivity change in the fourth quarter and the annual average changes were:

Business sector 1.8 4.3 Nonfarm business sector 2.7 4.2

In the fourth quarter, productivity increased 1.8 percent in the business sector following an 8.7-percent increase (as revised) one quarter earlier (seasonally adjusted annual rates). In nonfarm businesses, productivity also grew more slowly in the fourth quarter, 2.7 percent, than it had one quarter earlier, when it rose 9.5 percent. On an annual average basis, productivity rose 4.3 percent in the business sector and 4.2 percent in the nonfarm business sector. 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 4.8 4.3 Durable goods manufacturing 6.4 6.7 Nondurable goods manufacturing 3.8 1.2

Productivity and cost measures for the manufacturing sector are now reported using the 2002 North American Industry Classification System (NAICS). Because of the reclassification, these measures are not directly comparable with manufacturing measures published on or before Dec. 3, 2003. See "Revised Measures".

Manufacturing productivity grew 4.8 percent in the fourth quarter, reflecting a 6.6-percent increase in output and a 1.7-percent rise in hours of all persons. On an annual average basis, output per hour in the manufacturing sector posted a 4.3-percent increase in 2003. Output and hours in manufacturing, which includes about 13 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 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, 2003

Business

Productivity in the business sector increased by 1.8 percent in the fourth quarter of 2003, reflecting increases of 3.7 percent in output and 1.9 percent in hours of all persons (seasonally adjusted annual rates). The fourth-quarter rise in hours of all persons was the largest since a 2.5- percent increase in the fourth quarter of 1999. Hours had risen 1.4 percent in the third quarter of 2003. Both the productivity and output increases were smaller than the increases recorded in the previous quarter, when productivity rose 8.7 percent and output grew 10.3 percent. The 10.3-percent output increase in the third quarter was the largest in the sector since the second quarter of 1983, when output rose at an 11.7-percent annual rate.

Hourly compensation rose 0.9 percent in the fourth quarter of 2003, following a 2.7-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 0.1 percent during the fourth quarter of 2003. This measure rose 0.4 percent in the third quarter.

The unit labor cost measure, which relates hourly compensation to output per hour, dropped 0.8 percent in the fourth quarter. Unit labor costs also fell in the previous two quarters, 5.5 percent in the third quarter 2003 and 1.7 percent in the second quarter. These costs had risen 1.2 percent in the first quarter of the year.

Nonfarm business

In the nonfarm business sector, productivity increased 2.7 percent in the fourth quarter of 2003. Output grew 4.2 percent and hours of all persons grew 1.5 percent (seasonally adjusted annual rates). As in the larger business sector, the fourth-quarter productivity increase was less than the third-quarter increase. As revised, productivity increased 9.5 percent in the third quarter of 2003, reflecting a 10.4-percent rise in output and 0.8- percent growth in hours of all persons (table 2). The third-quarter output increase was the largest since a 12.3 percent rise was posted in the third quarter of 1983 and the fourth-quarter hours increase was bigger than any since the first quarter of 2000, when hours rose 1.7 percent.

Hourly compensation in the nonfarm business sector rose 1.3 percent in the fourth quarter of 2003, down from the 3.4-percent rise of the third quarter. When the changes in consumer prices were taken into account, real hourly compensation grew 0.5 percent during the fourth quarter of 2003 and 1.0 percent one quarter earlier.

Unit labor costs dropped 1.3 percent in the fourth quarter, after falling 5.6 percent in the third quarter of 2003 and 1.3 percent in the second quarter. The implicit price deflator for nonfarm business output increased 0.3 percent in the fourth quarter of 2003, after increasing 1.1 percent one quarter earlier.

Manufacturing

Manufacturing productivity grew 4.8 percent (seasonally adjusted annual rate) in the fourth quarter of 2003 as output and hours increased 6.6 and 1.7 percent, respectively (table 3). This was the largest increase in manufacturing output since a 7.1-percent increase in the fourth quarter of 1997. The hours increase was the first since a 0.1-percent rise in the second quarter of 2000. In the third quarter, manufacturing productivity increased 9.7 percent, reflecting a 4.3-percent rise in output and a 5.0- percent decrease in hours. In durable goods manufacturing, productivity rose 6.4 percent in the fourth quarter as output grew 10.2 percent and hours increased 3.6 percent (table 4). Among nondurable goods manufacturers, productivity increased 3.8 percent in the fourth quarter as output rose 2.6 percent and hours at work in the sector fell 1.1 percent (table 5).

Average hourly compensation of manufacturing workers increased 1.5 percent in the fourth quarter of 2003, reflecting increases in hourly compensation of 0.6 percent in durable goods manufacturing and 2.9 percent in nondurable goods manufacturing. When the increase in consumer prices was taken into account, real hourly compensation in total manufacturing rose 0.7 percent.

Unit labor costs for the manufacturing sector dropped by 3.1 percent in fourth quarter 2003. In durable goods manufacturing, unit labor costs fell 5.5 percent and, in nondurable goods manufacturing, unit labor costs decreased 0.9 percent.

ANNUAL AVERAGE CHANGES, 2002-2003

Business

Business sector productivity increased 4.3 percent when the annual average for 2003 was compared with the annual average for 2002 (table B). Output increased 3.7 percent and hours of all persons engaged in the sector dropped 0.6 percent. Productivity had increased 4.8 percent in 2002, when output rose 2.3 percent and hours fell 2.4 percent. The 4.8-percent productivity increase in 2002 was the largest in the sector since an 8.1- percent rise was posted in 1950. Also, the combination of the 4.8 percent productivity increase in 2002 and the 4.3 percent increase in 2003 produced the largest two-year gain, a 4.5-percent average annual rate of growth, since 1949-51, when it grew at a 5.7-percent annual rate, reflecting annual increases of 8.1 percent in 1950 and 3.1 percent in 1951.

Hourly compensation in the business sector increased 3.0 percent in 2003, more than the 2.1-percent increase in 2002. Real hourly compensation increased 0.7 percent in 2003 and 0.5 percent one year earlier. Unit labor costs in the business sector fell 1.2 percent in 2003 and 2.5 percent in 2002. These were the first annual declines in these costs since the early 1960s. (Unit labor costs fell 0.3 percent in 1963 and 0.1 percent in 1962.) The implicit price deflator for the business sector rose 1.3 percent in 2003 and 0.8 percent in 2002.

Nonfarm business

Productivity increased 4.2 percent in the nonfarm business sector during 2003, reflecting a 3.7-percent rise in output and a 0.5-percent decline in hours. During 2002, productivity had increased 4.9 percent in nonfarm business, as output rose 2.3 percent and hours of all persons fell 2.5 per cent. As in the larger business sector, the 2002 productivity increase was the largest since 1950, when productivity rose 6.6 percent. When the productivity increases for 2002 and 2003 are combined, productivity for the 2001-2003 period rose 4.5 percent in nonfarm businesses. The last comparable two-year rise occurred over the 1949-1951 period, when productivity increased at a 4.6 percent annual rate, incorporating rises of 6.6 percent in 1950 and 2.7 percent in 1951.

In 2003, hourly compensation increased 2.9 percent, up from the 2.2- percent rise in 2002. When the increase in consumer prices was taken into account, real hourly compensation rose 0.6 percent in both 2003 and 2002.

Unit labor costs in the nonfarm business sector dropped 1.2 percent in 2003, less than the 2.5-percent decline in 2002. Prior to 2002, the last time annual unit labor costs in the nonfarm business sector declined was in 1983, when they dropped 0.3 percent. The implicit price deflator for nonfarm business rose 1.2 percent in 2003 and 0.9 percent in 2002.

Manufacturing

In manufacturing, labor productivity rose 4.3 percent in 2003 and 6.8 percent in 2002. The 2003 increase occurred as output grew 0.1 percent and hours of all persons fell 4.0 percent (table B). There was a 6.7-percent increase in durable goods manufacturing productivity, as output rose 2.1 percent and hours fell 4.3 percent. Nondurable goods manufacturing posted a more modest increase in productivity, 1.2 percent, reflecting an output decline of 2.2 percent and a drop in hours of 3.3 percent.

Hourly compensation of manufacturing workers increased 4.5 percent in 2003, more than the 3.6-percent growth in 2002. In 2003, hourly compensation rose 4.3 percent in durable goods manufacturing and 5.0 percent in nondurable good manufacturing. Taking into account the rise in consumer prices, real hourly compensation in manufacturing rose 2.2 percent in 2003 and 2.0 percent one year earlier.

Unit labor costs in manufacturing grew 0.3 percent in 2003. These costs had declined 3.0 percent in calendar year 2002. Unit labor costs in durable goods manufacturing declined 2.2 percent in 2003, compared with a 3.8-percent rise in unit labor costs in nondurable goods manufacturing.

Revised Measures

Current and previous measures for the third quarter of 2003 for the business and nonfarm business sectors are compared in table C. In both sectors, productivity, output, and hours growth in the third quarter were similar to those reported on Dec. 3. Also in both sectors, hourly compensation and real hourly compensation grew more than reported in December. Because hourly compensation was revised up more than labor productivity, unit labor costs in the third quarter dropped less than reported two months ago.

Measures of productivity and costs for manufacturing also differ from those published on Dec. 3-however, the current manufacturing measures are not strictly comparable with earlier series. The manufacturing sectors are now defined using the 2002 North American Industry Classification System (NAICS 2002); previously these measures were classified on the 1987 Standard Industrial Classification (SIC). Some detailed industries formerly included in manufacturing are no longer included, while some detailed industries formerly in other sectors are now included. On net, the NAICS changes have reduced the size of the manufacturing sector.

Measures of productivity and costs for the business, nonfarm business, and manufacturing sectors were revised for all years and quarters. See "Historical Revisions".

Revised measures: Nonfinancial Corporations

Revised third-quarter productivity and output measures for nonfinancial corporations also were announced today. In the third quarter, output and productivity increased less and hours fell less than reported on Dec. 3. Hourly compensation was revised up. This, combined with the downward revision to productivity, led to less of a decline in unit labor costs (table D). Historical measures for nonfinancial corporations also were revised for all years and quarters. See "Historical Revisions."

Third quarter 2003

Historical revisions

All measures of output for the business, nonfarm business, and nonfinancial corporate sectors have been revised to reflect the recent release of revised national income and product accounts by the Bureau of Economic Analysis (BEA), U.S. Department of Commerce. Compensation measures for all sectors, including manufacturing, also were revised to incorporate these new data. In addition, historical measures of employment and hours for the business, nonfarm business, and nonfinancial corporate sectors were revised to incorporate both revised historical information from the BEA and the most recent information from the 1997 economic censuses conducted by the Census Bureau on the proportions of persons working in nonprofit institutions serving individuals and those in for-profit nonfinancial corporations. Revised output, compensation, and employment and hours data for the manufacturing and nonfinancial corporate sectors also reflect conversion from the 1987 Standard Industrial Classification to the 2002 North American Industry Classification System. The annual output measures for manufacturing incorporate the Census Bureau's 2001 Annual Survey of Manufactures.

Appendix tables 1-6 show the revised annual measures for all sectors. Links to tables showing the full historical revision including the quarterly measures will be posted on the productivity and costs home page, http://www.bls.gov/lpc/home.htm. Measures for the manufacturing, durable manufacturing, and nondurable manufacturing sectors now begin in 1987. Because the BEA compensation data extend back only to 1998, the BLS constructed measures for 1987-97 based on trends in compensation data from its industry productivity program. BLS may consider the possibility of extending the productivity and cost measures back further but currently has no plans to do so.

Upcoming changes to productivity and cost data

New estimates of average weekly hours at work for nonproduction and supervisory workers will be introduced into the BLS major sector productivity and cost measures beginning with the August 10, 2004, release. An article discussing these new measures and the effects of this change will be published in the Monthly Labor Review sometime in the next few months. A technical note describing the methodology will be available this summer.

In addition, on Aug. 10, the BLS intends to begin adjusting its hours series derived from the Current Population Survey (employment and hours for the farm sector, nonfarm self-employed, and nonfarm unpaid family workers and hours for employees of government enterprises) for the effects of multiple jobholding and to begin using concurrent seasonal adjustment for these series. Further information on these changes will be announced later this year.