2004 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 2004. The seasonally adjusted annual rates of productivity change in the fourth quarter and the annual average changes were:

Business sector 2.5 4.0 Nonfarm business sector 0.8 4.1

In the fourth quarter, productivity increased 2.5 percent in the business sector--about the same as in the third quarter, when it increased 2.4 percent (seasonally adjusted annual rates). In nonfarm businesses, productivity grew more slowly in the fourth quarter, 0.8 percent, than in the third quarter, when it rose 1.8 percent. On an annual average basis, productivity rose 4.0 percent in the business sector and 4.1 percent in the nonfarm business sector.

In the manufacturing sector, increases in productivity were:

Manufacturing sector 5.6 4.9 Durable goods manufacturing 7.3 6.1 Nondurable goods manufacturing 3.7 3.9

Manufacturing productivity grew 5.6 percent in the fourth quarter. On an annual average basis, output per hour in the manufacturing sector posted a 4.9-percent increase in 2004. 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. 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.

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, 2004

Business

Productivity in the business sector increased by 2.5 percent in the fourth quarter of 2004, reflecting increases of 3.3 percent in output and 0.8 percent in hours of all persons (seasonally adjusted annual rates). Output per hour had increased 2.4 percent in the third quarter, as output and hours increased 4.5 percent and 2.0 percent, respectively.

Hourly compensation grew 4.2 percent in the fourth quarter of 2004, following a 3.8-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, rose 0.8 percent in the fourth quarter, and 1.9 percent in the third quarter, of 2004.

Unit labor costs, which relate hourly compensation to output per hour, increased 1.7 percent in the fourth quarter. Business sector unit labor costs had increased 1.3 percent in the third quarter of 2004.

Nonfarm business

In the nonfarm business sector, productivity increased 0.8 percent in the fourth quarter of 2004, as output grew 2.8 percent and hours of all persons grew 1.9 percent (seasonally adjusted annual rates). Productivity had increased 1.8 percent in the third quarter of 2004, reflecting a 4.2- percent rise in output and 2.4-percent growth in hours of all persons (table 2). The fourth-quarter 0.8-percent increase in productivity was the smallest since the first quarter of 2001, when nonfarm business output per hour declined 0.4 percent.

Hourly compensation in the nonfarm business sector rose 3.1 percent in the fourth quarter of 2004, following a 3.5-percent increase in the third quarter. When changes in consumer prices were taken into account, real hourly compensation declined 0.3 percent during the fourth quarter of 2004 and increased 1.6 percent in the third quarter.

Unit labor costs increased 2.3 percent in the fourth quarter, after rising 1.6 percent in the third quarter of 2004. The implicit price deflator for nonfarm business output increased 2.0 percent in the fourth quarter of 2004, after increasing 1.8 percent one quarter earlier.

Manufacturing

Manufacturing productivity grew 5.6 percent (seasonally adjusted annual rate) in the fourth quarter of 2004 as output increased 4.5 percent and hours decreased 1.0 percent (table 3). In the third quarter, manufacturing productivity increased 4.2 percent, reflecting a 4.0-percent rise in output and a 0.1-percent decline in hours. In durable goods manufacturing, productivity rose 7.3 percent in the fourth quarter as output grew 6.6 percent and hours decreased 0.6 percent (table 4). Among nondurable goods manufacturers, productivity increased 3.7 percent in the fourth quarter as output rose 2.0 percent and hours at work in the sector fell 1.7 percent (table 5).

Average hourly compensation of manufacturing workers increased 6.0 percent in the fourth quarter of 2004, reflecting increases in hourly compensation of 6.1 percent in durable goods manufacturing and 5.7 percent in nondurable goods manufacturing. When the increase in consumer prices was taken into account, real hourly compensation in total manufacturing rose 2.5 percent.

Unit labor costs for the manufacturing sector rose 0.4 percent in fourth- quarter 2004. In durable goods manufacturing, unit labor costs fell 1.1 percent, and in nondurable goods manufacturing unit labor costs increased 2.0 percent.

ANNUAL AVERAGE CHANGES, 2003-2004

Business

Business sector productivity increased 4.0 percent when the annual average for 2004 was compared with the annual average for 2003 (table B). Output increased 5.1 percent and hours of all persons engaged in the sector rose 1.0 percent. Productivity had increased 4.5 percent in 2003, when output rose 3.8 percent and hours fell 0.7 percent. The 4.5-percent productivity increase in 2003 was the largest in the sector since a 4.6- percent rise in 1962.

Business:

Nonfarm Business:

Manufacturing:

Hourly compensation in the business sector increased 4.3 percent in 2004, following a 4.1-percent increase in 2003. Real hourly compensation increased 1.6 percent in 2004 and 1.8 percent one year earlier. Unit labor costs in the business sector rose 0.3 percent in 2004 and fell 0.4 percent in 2003. The implicit price deflator for the business sector rose 1.7 percent in 2004 and 1.3 percent in 2003.

Nonfarm business

Productivity increased 4.1 percent in the nonfarm business sector in 2004, reflecting increases of 5.3 percent in output and 1.1 percent in hours. During 2003, output per hour increased 4.4 percent in nonfarm business, as output rose 3.8 percent and hours of all persons fell 0.6 percent. Nonfarm productivity also had increased 4.4 percent in 2002. When the productivity increases for 2002, 2003, and 2004 are combined, productivity for the 2001- 2004 period rose 4.3 percent in nonfarm businesses. The last comparable three-year rise occurred over the 1948-1951 period, when productivity increased at a 4.2 percent annual rate, incorporating gains of 3.3 percent in 1949, 6.6 percent in 1950, and 2.7 percent in 1951.

In 2004, hourly compensation increased 4.2 percent, similar to the 4.1- percent rise in 2003. When the increase in consumer prices was taken into account, real hourly compensation rose 1.5 percent in 2004 and 1.7 percent in 2003.

Unit labor costs in the nonfarm business sector edged up 0.1 percent in 2004, following a 0.4-percent decline in 2003. The implicit price deflator for nonfarm business rose 1.6 percent in 2004 and 1.1 percent in 2003.

Manufacturing

In manufacturing, labor productivity rose 4.9 percent in 2004, as output grew 4.8 percent and hours of all persons declined 0.1 percent (table B). Although productivity had increased at a similar rate in 2003, 5.0 percent, that productivity gain was due almost entirely to falling hours, as output was unchanged. There was a 6.1-percent increase in durable goods manufacturing productivity in 2004, as output rose 7.1 percent and hours rose 0.9 percent. Nondurable goods manufacturing posted a more modest increase in productivity, 3.9 percent, reflecting an increase in output of 2.1 percent and a decrease in hours of 1.8 percent.

Hourly compensation of manufacturing workers increased 3.6 percent in 2004, down from the 8.5-percent growth rate in 2003. In 2004, hourly compensation rose 2.9 percent in durable goods manufacturing and 4.8 percent in nondurable good manufacturing. Taking into account the rise in consumer prices, real hourly compensation in manufacturing rose 0.9 percent in 2004 and 6.1 percent one year earlier.

Unit labor costs in manufacturing fell 1.3 percent in 2004. These costs had increased 3.3 percent in calendar year 2003. Unit labor costs in durable goods manufacturing fell 3.0 percent in 2004, compared with a 0.8-percent rise in unit labor costs in nondurable goods manufacturing.

Revised Measures

Current and previous measures for the third quarter of 2004 for the business and nonfarm business sectors are compared in table C. In the business and nonfarm business sectors, productivity, output, and hours growth in the third quarter were the same as reported on Dec. 7. Also in both of these sectors, hourly compensation and real hourly compensation grew less than reported in December. Because hourly compensation was revised down while productivity was unchanged, unit labor costs in the third quarter increased less than previously reported.

Third quarter 2004

In the manufacturing sector, output and productivity were revised down in the third quarter, and hours of all persons were unchanged. Growth in hourly compensation and real hourly compensation were also revised down. Because the downward revision to productivity was greater than that to hourly compensation, unit labor costs were revised up.

Manufacturing sector productivity and costs measures reflect revised source data. Revised indexes of industrial production were published by the Board of Governors of the Federal Reserve System on Dec. 22. Incorporating the revised data impacted quarterly measures of output, productivity, and unit labor costs back to 1987 and annual measures for 2002 and 2003. Also, revised data on manufacturing compensation for 1987-1997 were provided by the U.S. Department of Commerce on a NAICS rather than SIC basis for the first time. Annual and quarterly measures of hourly compensation, real hourly compensation, and unit labor costs were subject to revision from this source back to 1987. Annual historical data for manufacturing, durable manufacturing, and nondurable manufacturing are presented in appendix tables 1-3. Tables showing the quarterly and annual data for all years, 1987-2004, will be posted on the BLS website later today.

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 increased more, than reported on Dec. 7. Hourly compensation was revised down less than was productivity, resulting in a smaller decline in unit labor costs than previously reported (table D).

Third quarter 2004

The measure of output for the nonfinancial corporate sector has been revised by the Bureau of Economic Analysis (BEA), U.S. Department of Commerce. As a result, several measures for this sector were revised back to 1958. Recent quarterly and annual data for nonfinancial corporations are shown in table 6. Appendix table 4 provides complete annual measures. And full quarterly and annual historical series will be posted on the BLS website later today.

Upcoming changes to productivity and cost data

Later this year, 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. Current measures treat all hours worked by individuals whose primary job is in these groups as being on the primary job. This may overstate the hours of some workers while omitting the hours of others. The revised measures will be adjusted in two ways. First, hours worked by these workers in their primary jobs will be used in each measure. Secondly, the hours of all persons who hold more than one job will be examined. Hours worked in secondary jobs by the self-employed, unpaid family workers, and farm wage and salary workers will be included in the hours used for the productivity and cost measures. The aggregate effect of these changes is small.