2004 First 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.

First Quarter 2004, preliminary

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 first quarter of 2004. The seasonally adjusted annual rates of productivity change in the first quarter were:

4.5 percent in the business sector and 3.5 percent in the nonfarm business sector.

In both the business and nonfarm business sectors, productivity and output increased more in the first quarter than they had in the fourth quarter of 2003 (as revised) while the hours of all persons grew more slowly.

In manufacturing, productivity changes in the first quarter were:

3.1 percent in manufacturing, 5.9 percent in durable goods manufacturing, and 0.1 percent in nondurable goods manufacturing.

Productivity growth in manufacturing in the first quarter of 2004 reflected increases in both output and hours; output rose 5.8 percent and hours of all persons grew 2.7 percent (seasonally adjusted annual rates). 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. First-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

Productivity in the business sector rose 4.5 percent in the first quarter 2004, as output grew 4.8 percent and hours of all persons engaged in the sector increased 0.3 percent (seasonally adjusted annual rates). Revised data for the fourth quarter of 2003 show that output per hour increased 1.8 percent, reflecting a 3.9-percent rise in output and a 2.0-percent increase in hours at work. (See table 1.)

Hourly compensation increased 5.3 percent during the first quarter of 2004. This measure includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Hourly compensation had risen 2.1 percent in the previous quarter. Real hourly compensation, which takes into account changes in consumer prices, increased 1.6 percent in the first quarter of 2004, growing slightly faster than in the fourth quarter of 2003, when it rose 1.3 percent.

Unit labor costs rose 0.8 percent in the first quarter of 2004, more rapidly than the 0.2-percent increase in the fourth quarter. Growth in unit labor costs is roughly equivalent to the change in hourly compensation less the change in output per hour.

The implicit price deflator for the business sector, which reflects changes in both unit labor costs and unit nonlabor payments, rose 2.1 percent in the first quarter. This was the largest increase in the implicit price deflator since the second quarter of 2001, when it grew by 3.1 percent.

Nonfarm business

Productivity rose 3.5 percent in the nonfarm business sector in first- quarter 2004, as output increased 4.9 percent and hours of all persons increased 1.3 percent (seasonally adjusted annual rates). In the fourth quarter of 2003, productivity had risen 2.5 percent, reflecting increases in output and hours of 4.2 and 1.6 percent, respectively. (See table 2.)

Hourly compensation increased at a 4.0 percent annual rate in the first quarter of 2004, more rapidly than the 2.5-percent increase in the fourth quarter. When the rise in consumer prices was taken into account, real hourly compensation grew by 0.4 percent in the first quarter; it had increased 1.7 percent in the fourth quarter of 2003.

Unit labor costs grew 0.5 percent in the first quarter of 2004; they were unchanged in the fourth quarter of 2003. The implicit price deflator for nonfarm business output rose 1.9 percent in the first quarter and 0.6 percent one quarter earlier.

Manufacturing

Productivity increased 3.1 percent in manufacturing in the first quarter of 2004, as output increased 5.8 percent and hours of all persons grew 2.7 percent (seasonally adjusted annual rates). Productivity rose 5.9 percent in durable goods manufacturing, reflecting a 9.3 percent growth in output and a 3.3 percent increase in all person hours. In contrast, all of these measures grew much more slowly in nondurable goods manufacturing, where productivity rose 0.1 percent and output and hours grew 1.8 percent and 1.7 percent, respectively.

The hourly compensation of all manufacturing workers rose 5.2 percent during the first quarter, and real hourly compensation increased 1.5 percent. The 5.2-percent hourly compensation increase reflects a change of 4.4 percent in durable goods and 6.4 percent in nondurable goods.

Because the hourly compensation of manufacturing workers rose more rapidly than output per hour, unit labor costs increased in the first quarter, by 2.0 percent. This increase followed two quarters of decreases. Total manufacturing unit labor costs fell 4.1 percent in the third quarter of 2003 and 1.8 percent in fourth quarter, 2003. In durable goods manufacturing, however, unit labor costs continued to fall in the first quarter of 2004, dropping 1.4 percent. All of the increase in manufacturing unit labor costs came from the nondurable goods subsector, where unit labor costs grew 6.3 percent.

Fourth-quarter and annual measures for nonfinancial corporations

Fourth-quarter and annual 2003 measures of productivity and costs also were announced today for the nonfinancial corporate sector (tables B, C, and 6). Output per all-employee hour grew 3.3 percent from the third to the fourth quarter of 2003, as output grew 5.0 percent and employee hours increased 1.6 percent. This was the first increase in hours in the sector since a 0.2-percent rise was recorded in the second quarter of 2000. 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 increased 2.3 percent in the fourth quarter, and real hourly compensation rose 1.6 percent. Unit labor costs fell 1.0 percent in the fourth quarter of 2003--the third consecutive drop in these costs. Unit labor costs have fallen in eight of the last nine quarters. In the fourth quarter, unit profits increased 12.7 percent after rising at a 45.0- percent annual rate in the previous quarter. The implicit price deflator for nonfinancial corporate output grew 1.1 percent during the fourth quarter of 2003, just slightly more than the 0.9-percent increase in the third quarter.

Productivity grew 5.7 percent in calendar year 2003 for nonfinancial corporations, following an increase of 5.1 percent in the previous year. (See table C.) These are the largest annual productivity increases in the history of the series, which begins in 1959. Nonfinancial corporate output grew 4.2 percent in 2003, and employee hours decreased 1.5 percent. This was the third consecutive decrease in employee hours.

Hourly compensation grew 4.2 percent in 2003, and real hourly compensation increased 1.8 percent. Total unit costs declined 1.8 percent, reflecting a 1.5-percent decrease in unit labor costs and a 2.8-percent drop in unit nonlabor costs. Unit profits rose 20.5 percent in 2003. The implicit price deflator, which reflects both the unit costs and unit profits measures, rose 0.2 percent in 2003.

Revised measures

Current and previous measures for the third and fourth quarters and annual average of 2003 in the business, nonfarm business, and manufacturing sectors are compared in table D. Some of the quarterly movements differ from those reported on March 4. Productivity was revised down slightly in the fourth quarter for the business and nonfarm business sectors, reflecting upward revisions to hours of all persons. In manufacturing, the upward revision to hours was matched by an upward revision to output so growth in productivity was unchanged.

In both the third and fourth quarters of 2003, hourly compensation and unit labor costs were revised up in the business and nonfarm business sectors. In the third quarter of 2003, unit labor costs in both the business and nonfarm business sectors continue to show a decline--although by less than previously reported. In the fourth quarter, however, unit labor costs in the business and nonfarm business sectors no longer show the slight declines reported on March 4. In the business sector, unit labor costs now show a small increase, 0.2 percent, in the fourth quarter and those in the nonfarm business sector are now unchanged. The combination of the upward quarterly revisions to hourly compensation and unit labor costs in both quarters was enough to change the annual average for these two sectors but unit labor costs still show a decline in 2003.

Hourly compensation also was revised up in manufacturing in both the third and fourth quarters of 2003. In the third quarter, hourly compensation was revised up by 0.5 percentage point, to 5.6 percent. Unit labor costs were revised up by the same amount, and now show a decline of 4.1 percent for the quarter. The upward revisions to hourly compensation in the fourth quarter were smaller, 0.2 percentage point. In the fourth quarter, hourly compensation rose 2.9 percent and unit labor costs declined 1.8 percent. For the entire year 2003, hourly compensation in manufacturing rose 5.6 percent and unit labor costs increased 0.4 percent.

The Consumer Price Index Research Series has been updated and new seasonal factors applied to it. Real hourly compensation measures are revised beginning with 1999. (See appendix tables 1-6.)

Revised measures: Nonfinancial Corporations

Productivity and cost measures for nonfinancial corporations for the third quarter of 2003 also were revised to incorporate more recent information than was available on March 4. Productivity and output in this sector were revised up for the third quarter of 2003. Productivity grew at an annual rate of 9.5 percent, compared with the increase of 8.6 percent published March 4. Hourly compensation was revised up more than output per hour, so unit labor costs decreased less than reported in March. (See tables E and 6.)

Third quarter 2003