2003 Fourth 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.

Fourth Quarter and Annual Averages, 2003

The Bureau of Labor Statistics of the U.S. Department of Labor today reported revised fourth-quarter seasonally-adjusted annual rates of productivity change-as measured by output per hour of all persons-and revised annual changes for the full year 2003. Percent changes in business and nonfarm business productivity were:

Business sector 2.0 4.5 Nonfarm business sector 2.6 4.4

In the fourth quarter, productivity increased 2.0 percent in the business sector, slightly more than the 1.8 percent rise reported Feb. 5. In nonfarm businesses, productivity grew 2.6 percent, compared to the preliminary estimate of 2.7 percent (seasonally adjusted annual rates). On an annual average basis, productivity rose 4.5 percent in the business sector and 4.4 percent in the nonfarm business sector--0.2 percentage points higher than previously reported in both sectors. Fourth-quarter productivity and related measures are summarized in table A and appear in detail in tables 1 through 5. Preliminary and revised fourth-quarter and annual data appear in table C.

In the manufacturing sector, increases in productivity were:

Manufacturing 4.8 5.1 Durable goods manufacturing 6.1 7.7 Nondurable goods manufacturing 4.4 1.9

Productivity in total manufacturing grew at a 4.8 percent annual rate in the fourth quarter of 2003, the same as reported Feb. 5, as a downward revision to fourth-quarter productivity growth in durable goods manufacturing was offset by an upward revision to output per hour in the nondurable goods subsector. Productivity increases from 2002 to 2003 were revised upward in total manufacturing and both subsectors. (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 data 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 2003 CHANGES

Business

Labor productivity in the business sector rose at a 2.0 percent annual rate in the fourth quarter of 2003, as output increased 3.9 percent and hours of all persons engaged in the sector increased 1.9 percent (table 1). The fourth-quarter increase in business sector hours was the largest since hours increased 2.3 percent in both the third and fourth quarters of 1999. Hours had increased 1.5 percent in the third quarter of 2003. Increases in both productivity and output were smaller in the fourth quarter than in the third quarter of 2003, when productivity increased 8.7 percent and output grew 10.3 percent.

Hourly compensation grew at a 1.8-percent annual rate in the fourth quarter, compared with a 2.7-percent rise in the third quarter. 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, rose 1.0 percent in the fourth quarter of 2003 after rising 0.3 percent one quarter earlier.

Unit labor costs, which reflect changes in hourly compensation and productivity, declined 0.2 percent during the fourth quarter of 2003, after falling 5.5 percent in the third quarter. The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, increased 1.2 percent in the fourth quarter and 1.3 percent in the third quarter.

Nonfarm business

In the nonfarm business sector, productivity rose at an annual rate of 2.6 percent in the fourth quarter of 2003, as output grew 4.1 percent and hours of all persons-employees, proprietors, and unpaid family workers--rose 1.5 percent (seasonally adjusted annual rates). This was the largest increase in hours since the first quarter of 2000. During the third quarter, productivity increased 9.5 percent, output grew 10.4 percent, and hours rose 0.9 percent (table 2).

Hourly compensation rose 2.2 percent in the fourth quarter, after rising 3.3 percent in the third quarter. When the increase in consumer prices was taken into account, real hourly compensation rose 1.4 percent in the fourth quarter and 1.0 percent in the third quarter.

Unit labor costs declined 0.4 percent in the fourth quarter, after dropping 5.6 percent in the third quarter. The implicit price deflator for nonfarm business increased 0.5 percent in the fourth quarter, and 1.1 percent in the third quarter, of 2003.

Manufacturing

Manufacturing productivity increased 4.8 percent in the fourth quarter of 2003, as output grew 6.1 percent and hours rose 1.3 percent (seasonally adjusted annual rates). This was the largest increase in manufacturing output since a 6.3-percent increase in the fourth quarter of 1999. The hours increase was the first since a 0.5-percent rise in the second quarter of 2000. In durable goods industries, productivity increased 6.1 percent when output grew 9.6 percent and hours rose 3.3 percent. In nondurable goods industries, output per hour gained 4.4 percent, reflecting an increase of 2.2 percent in output and a 2.0 percent decline in hours. During the third quarter, productivity had increased rapidly: 10.1 percent in total manufacturing, 14.5 percent in durable goods manufacturing, and 5.2 percent in nondurable goods manufacturing (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers increased 2.7 percent during the fourth quarter, rising in both of the manufacturing subsectors--1.4 percent in durable goods and 4.7 percent in nondurable goods. When the increase in consumer prices was taken into account, real hourly compensation for all manufacturing workers rose 2.0 percent in the fourth quarter.

Unit labor costs in manufacturing declined 2.0 percent in the fourth quarter of 2003, after falling 4.6 percent in the third quarter. These costs fell 4.4 percent in durable goods industries and edged up 0.3 percent in nondurable goods industries during the fourth quarter of 2003.

ANNUAL AVERAGE CHANGES, 2002-2003

Business

Business sector productivity increased 4.5 percent when the annual index for 2003 was compared with the annual index for 2002 (table B). The 2002- 2003 increase reflected a 3.7-percent increase in output and a 0.8-percent decline in hours. From 2001 to 2002, business sector productivity had increased 4.9 percent, when output grew 2.3 percent and hours worked fell 2.5 percent. The consecutive productivity increases in 2002 and 2003 yielded a 4.7-percent average annual rate of growth from 2001 to 2003. This was the largest two-year productivity gain since 1949-51, when output per hour grew at a 5.7-percent annual rate, reflecting annual increases of 8.1 percent in 1950 and 3.1 percent in 1951.

Percent change from previous year

Hourly compensation in the business sector increased 3.3 percent in 2003 and 2.2 percent in 2002. Real hourly compensation also increased more in 2003, 1.0 percent, than in 2002, when it rose 0.6 percent.

Business sector unit labor costs decreased 1.1 percent in 2003. In 2002, these costs had fallen 2.5 percent--the largest annual decrease to date in this measure, which begins with data for 1948. The implicit price deflator rose 1.4 percent in 2003 and 0.8 percent in 2002.

Nonfarm business

Productivity increased 4.4 percent in the nonfarm business sector during 2003. Output grew 3.7 percent and hours of all persons declined 0.7 percent. During 2002, productivity had increased 5.0 percent in nonfarm business, as output rose 2.3 percent and hours of all persons fell 2.6 percent. As in the larger business sector, when the productivity increases for 2002 and 2003 are combined, productivity for the 2001-2003 period rose at an average annual rate of 4.7 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.

Hourly compensation grew 3.2 percent in 2003, more than the 2.3-percent increase in 2002. Real hourly compensation increased 0.9 percent in 2003, following a 0.7-percent rise in the previous year.

Unit labor costs in the nonfarm business sector dropped 1.2 percent in 2003. These costs had decreased 2.5 percent during 2002, the largest annual decline in this measure ever recorded. The implicit price deflator, which reflects nonlabor payments as well as labor costs, rose 1.2 percent in 2003, following a 0.9-percent rise in 2002.

Manufacturing

Manufacturing productivity grew 5.1 percent in 2003, reflecting a 0.1- percent rise in output and a 4.8-percent decline in hours. In 2002, output per hour had increased 7.2 percent, as output fell 0.6 percent but hours fell faster, 7.3 percent. Labor productivity increased 7.7 percent in durable goods manufacturing during 2003, as output grew 2.0 percent and hours dropped 5.3 percent. In nondurable goods manufacturing, productivity rose 1.9 percent in 2003, as output and hours fell 2.2 percent and 4.0 percent, respectively (tables B, 3, 4, and 5).

Hourly compensation of manufacturing workers increased 5.5 percent in 2003, compared to a 4.0-percent increase one year earlier. Real hourly compensation rose 3.2 percent in 2003, after gaining 2.4 percent in 2002. Hourly compensation increased 5.4 percent in durable goods industries and 5.9 percent in nondurable goods industries in 2003.

Unit labor costs rose 0.4 percent in manufacturing from 2002 to 2003. In durable manufacturing, unit labor costs fell 2.1 percent in 2003. By contrast, unit labor costs in nondurable manufacturing rose last year, by 3.9 percent.

REVISED MEASURES

Productivity and cost data for the fourth quarter and full year 2003 for business, nonfarm business, and manufacturing were revised to incorporate the most recent information (table C). Quarterly and annual measures for the business, nonfarm business, nonfinancial corporate, and manufacturing sectors were revised back to 1999 to incorporate the annual benchmark adjustment and updated information on seasonal trends from the BLS nonfarm payroll series. Quarterly measures of real hourly compensation in these sectors during 2003 also reflect the recalculation of seasonal factors for the Consumer Price Index for All Urban Consumers.

Percent change, third to fourth quarter 2003

Business sector productivity increased 2.0 percent in fourth-quarter 2003, compared to a preliminary estimate of 1.8 percent (seasonally adjusted annual rates). In the nonfarm business sector, productivity grew 2.6 percent, about the same as the 2.7 percent figure published Feb. 5. Because hourly compensation growth was revised up by 0.9 percentage points in business and nonfarm business, unit labor costs did not decline as much as reported Feb. 5. Manufacturing productivity growth in the fourth quarter was the same as originally reported, reflecting downward revisions to both output and hours, so the larger gain in hourly compensation than previously reported implied a smaller decrease in unit labor costs.

When revised annual averages for 2003 are compared to those for 2002, downward revisions in hours worked led to upward revisions in productivity in business, nonfarm business, and especially manufacturing. In all of these sectors, upward revisions to hourly compensation approximately offset the larger productivity increases, and movements in unit labor costs were similar to the preliminary estimates.

Revised measures: Nonfinancial corporations

Measures for the nonfinancial corporate sector also were revised back to 1999 due to updated information on hours worked by employees. Third quarter measures for the sector were unchanged from information reported on Feb. 5. As a result of a slight downward revision to hours in 2002, productivity, hourly compensation, and real hourly compensation are slightly higher than previously announced. Unit labor costs are unchanged.

Third quarter 2003

Percent change, 2001-2002

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, BLS intends to introduce two improvements in the way it uses data from the Current Population Survey to measure the hours for its quarterly labor productivity and costs program. Employment and hours for the farm sector, nonfarm self-employed, and nonfarm unpaid family workers and hours for employees of government enterprises will be adjusted to account for the effects of multiple jobholding. Concurrent seasonal adjustment of these series also will be introduced. Further information on these changes will be announced later this year.