2004 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 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 third quarter of 2004. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were:

2.3 percent in the business sector and 1.9 percent in the nonfarm business sector.

Productivity increased 2.3 percent in the business sector, as output grew 4.2 percent and hours increased 1.9 percent. The 1.9-percent rise in nonfarm business productivity occurred as output rose 4.1 percent and hours rose 2.1 percent (table A).

In manufacturing, productivity increases in the third quarter were:

4.3 percent in manufacturing, 5.0 percent in durable goods manufacturing, and 4.3 percent in nondurable goods manufacturing.

The third-quarter increase in manufacturing productivity is much lower than the 8.3-percent rise reported for the previous quarter (as revised). 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. 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 2004, productivity in the business sector grew at a 2.3 percent seasonally adjusted annual rate. Output increased 4.2 percent, while hours of all persons engaged in the sector increased 1.9 percent. After revisions, productivity in the business sector rose 2.9 percent in the second quarter of 2004, reflecting a 3.9- percent rise in output and a 1.0-percent rise in hours (tables B and 1).

Hourly compensation in the business sector increased at an annual rate of 3.8 percent during the third quarter of 2004, more slowly than the 4.3- percent rise one quarter earlier (revised). 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 by 2.0 percent in the third quarter of 2004 after falling by 0.4 percent in the second quarter and 0.8 percent in the first quarter of the year.

Unit labor costs, which reflect changes in both hourly compensation and productivity, rose 1.5 percent during the third quarter, about the same rate of increase as the 1.4-percent growth in the second quarter. The implicit price deflator for the business sector increased 0.9 percent during the third quarter of 2004, following a 3.3 percent increase in the previous quarter.

Nonfarm business

Productivity in the nonfarm business sector grew at a 1.9-percent annual rate during the third quarter of 2004. Output grew 4.1 percent in the third quarter and hours worked in the nonfarm business sector rose 2.1 percent, reflecting a 1.7-percent gain in employment and a 0.4-percent increase in average weekly hours at work. Nonfarm business productivity increased 3.9 percent in the second quarter of 2004 (revised), as output grew 4.2 percent and hours rose by 0.3 percent (table 2).

Hourly compensation increased at a 3.6 percent annual rate in the third quarter of 2004. When the rise in consumer prices is taken into account, real hourly compensation rose 1.7 percent during the July-September period. During the second quarter of 2004, real hourly compensation had risen 0.2 percent.

Unit labor costs grew 1.6 percent during the third quarter of 2004. In the second quarter, unit labor costs in the nonfarm business sector had risen 1.0 percent. The implicit price deflator for nonfarm business output rose 1.6 percent in the third quarter of 2004.

Manufacturing

Productivity increased 4.3 percent in manufacturing in the third quarter of 2004, as output grew 4.0 percent and hours of all persons fell 0.3 percent (seasonally adjusted annual rates). In durable goods, productivity grew 5.0 percent in the third quarter as output increased 6.3 percent and hours of all persons rose 1.3 percent. Productivity increased 4.3 percent in nondurable goods, as a modest output increase of 1.3 percent was combined with a decline of 2.8 percent in hours of all persons (tables 3, 4, and 5).

The hourly compensation of manufacturing workers increased an average of 4.4 percent during the third quarter of 2004, reflecting increases of 3.9 percent in durable goods and 5.1 percent in nondurable goods. When the increase in consumer prices is taken into account, real hourly compensation in total manufacturing rose 2.5 percent in the third quarter. Real hourly compensation had fallen in both of the previous quarters, 0.9 percent in the second quarter (as revised) and 7.4 percent in the first quarter.

Unit labor costs in manufacturing edged up by 0.1 percent in the third quarter of 2004, after falling in three of the previous four quarters. In the durable goods sector, unit labor costs in the third quarter fell 1.0 percent in the third quarter and in the nondurable goods sector, these costs rose 0.8 percent.

Revised Measures

Current and previous measures for the first and second quarters of 2004 for the business, nonfarm business, and manufacturing sectors are compared in table B. Hours data for the second quarter now reflect more current data on the ratio of hours worked to hours paid and updated information on the relative average weekly hours of supervisory (nonproduction) workers to nonsupervisory (production) workers in private nonfarm businesses.

In the business and nonfarm business sectors, productivity grew more rapidly than reported on Sept. 2, based on information then available. In both sectors, the growth in output was revised up and the growth in hours was revised down. Hourly compensation was revised up in both sectors. Unit labor costs rose much less than reported earlier. Productivity also was revised up in the manufacturing sector, reflecting faster growth in output and a larger decline in hours than previously reported. Hourly compensation rose more rapidly in the second quarter than reported earlier. Because productivity was revised up more than hourly compensation, unit labor costs in manufacturing show more of a decline in the second quarter than reported on Sept. 2.

On Oct. 13, 2004, a notice regarding corrections to the data released on Sept. 2 was posted on the BLS web site. Data for the second quarter 2004 for business, nonfarm business, manufacturing, and nonfinancial corporations were not affected. The Productivity and Costs news release of Aug. 10, 2004, which included revisions to historical measures, also contained some incorrect data. For more information, see www.bls.gov/lpc/note09022004.htm

Revised measures: Nonfinancial Corporations

Productivity and cost measures for nonfinancial corporations for the second quarter of 2004 also were revised to incorporate more recent information than was available on Sept. 2.

Second quarter 2004

Productivity grew at an annual rate of 2.7 percent in second-quarter 2004, compared with the increase of 1.4 percent published Sept. 2. This was the combined result of both an upward revision in output growth, from 3.2 percent to 3.7 percent, and a downward revision to hours growth, from 1.8 to 0.9 percent. Hourly compensation was revised up. However, the upward revision to productivity more than offset the upward revision to hourly compensation, and unit labor costs grew more slowly than reported previously. Unit profits also grew more rapidly than reported on Sept. 2. (tables C and 6).

Upcoming change

Early in 2005, BLS will improve the way it uses data for farm workers, the nonfarm self employed, and nonfarm unpaid family workers in the productivity program by accounting for the effects of multiple jobholding.