2004 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, 2004, Revised

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 2004. Percent changes in business and nonfarm business productivity were:

Business sector 3.7 4.0 Nonfarm business sector 2.1 4.0

In the fourth quarter, productivity increased 3.7 percent in the business sector, more than the 2.5 percent preliminary estimate published Feb. 3. In nonfarm businesses, productivity grew 2.1 percent, compared to the preliminary estimate of 0.8 percent (seasonally adjusted annual rates). On an annual average basis, productivity rose 4.0 percent in both sectors-- the same as the preliminary estimate for the business sector, and 0.1 percentage point lower than previously reported for nonfarm businesses.

In the manufacturing sector, increases in productivity were:

Manufacturing 5.8 5.2 Durable goods manufacturing 7.1 6.3 Nondurable goods manufacturing 3.9 4.3

Productivity in total manufacturing grew at a 5.8 percent annual rate in the fourth quarter of 2004, slightly more than the 5.6 percent preliminary estimate, as a downward revision to fourth-quarter productivity growth in durable goods manufacturing partially offset an upward revision to output per hour in the nondurable goods subsector. Productivity increases from 2003 to 2004 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. 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.

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 2004 CHANGES

Business

Labor productivity in the business sector rose at a 3.7 percent annual rate in the fourth quarter of 2004, as output increased 4.2 percent and hours of all persons engaged in the sector increased 0.5 percent (table 1). Output was revised up and hours growth was revised down, resulting in a larger productivity gain than originally reported. Revised estimates show that output per hour increased 2.0 percent in the third quarter, as output increased 4.5 percent and hours increased 2.5 percent.

Hourly compensation grew at a 4.5-percent annual rate in the fourth quarter, compared with a 5.8-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 0.9 percent in the fourth quarter of 2004 after increasing 4.1 percent one quarter earlier.

Unit labor costs, which reflect changes in hourly compensation and productivity, increased 0.8 percent during the fourth quarter of 2004, after rising 3.7 percent in the third quarter. The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, increased 2.1 percent in the fourth quarter and 1.1 percent in the third quarter.

Nonfarm business

In the nonfarm business sector, productivity rose at an annual rate of 2.1 percent in the fourth quarter of 2004, as output grew 3.7 percent and hours of all persons--employees, proprietors, and unpaid family workers--rose 1.6 percent (seasonally adjusted annual rates). Nonfarm business productivity increased 1.3 percent in the third quarter of 2004, as output and hours grew 4.2 percent and 2.8 percent, respectively (table 2).

Hourly compensation rose 3.4 percent in the fourth quarter, after increasing 5.4 percent in the third quarter. When the increase in consumer prices was taken into account, real hourly compensation fell 0.2 percent in the fourth quarter and rose 3.7 percent in the third quarter.

Unit labor costs rose 1.3 percent in the fourth quarter after increasing 4.0 percent one quarter earlier. The implicit price deflator for nonfarm business increased 2.2 percent in the fourth quarter, and 1.8 percent in the third quarter, of 2004.

Manufacturing

Manufacturing productivity increased 5.8 percent in the fourth quarter of 2004, as output grew 4.6 percent and hours fell 1.1 percent (seasonally adjusted annual rates). In durable goods industries, productivity increased 7.1 percent when output grew 6.0 percent and hours fell 1.0 percent. In nondurable goods industries, output per hour gained 3.9 percent, reflecting an increase of 2.5 percent in output and a 1.3 percent decline in hours. During the third quarter, productivity increased 4.4 percent in total manufacturing, 4.6 percent in durable goods manufacturing, and 4.8 percent in nondurable goods manufacturing (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers increased 6.2 percent during the fourth quarter--6.6 percent in durable goods and 5.4 percent in nondurable goods. When the increase in consumer prices was taken into account, real hourly compensation for all manufacturing workers rose 2.5 percent in the fourth quarter and 7.4 percent in the third quarter (as revised).

Unit labor costs in manufacturing rose 0.4 percent in the fourth quarter of 2004, after increasing 4.6 percent in the third quarter. These costs declined 0.5 percent in durable goods industries and rose 1.5 percent in nondurable goods industries during the fourth quarter of 2004.

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 1.1 percent. In 2003, business sector productivity increased 4.5 percent, as output grew 3.8 percent and hours declined 0.6 percent.

Percent change from previous year

Hourly compensation in the business sector increased 4.5 percent in 2004 and 4.1 percent in 2003. Real hourly compensation increased 1.8 percent in each of the last two years.

Business sector unit labor costs increased 0.5 percent in 2004. In 2003, these costs fell 0.4 percent. The implicit price deflator rose 1.7 percent in 2004 and 1.3 percent in 2003.

Nonfarm business

Productivity increased 4.0 percent in the nonfarm business sector during 2004. Output grew 5.3 percent and hours of all persons increased 1.2 per- cent. In 2003, productivity grew 4.4 percent when output grew 3.8 percent and hours declined 0.5 percent. During 2002, productivity increased 4.3 percent in the nonfarm business sector, as output rose 1.8 percent and hours of all persons fell 2.5 percent. Productivity for the 2001-2004 period rose at an average annual rate of 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 rises of 3.3 percent in 1949, 6.6 percent in 1950, and 2.7 percent in 1951.

Hourly compensation grew 4.4 percent in 2004, following a 4.0-percent increase in 2003. Real hourly compensation increased 1.7 percent in both 2003 and 2004.

Unit labor costs in the nonfarm business sector rose 0.4 percent in 2004, after falling 0.4 percent in 2003. The implicit price deflator, which reflects nonlabor payments as well as labor costs, rose 1.6 percent in 2004, following a 1.1-percent rise in 2003.

Manufacturing

Manufacturing productivity grew 5.2 percent in 2004, reflecting a 4.8- percent rise in output and a 0.4-percent decline in hours. In 2003, output per hour also increased 5.2 percent, but that productivity gain was due almost entirely to falling hours, as output was unchanged. Labor productivity increased 6.3 percent in durable goods manufacturing during 2004, as output grew 7.0 percent and hours rose 0.7 percent. In nondurable goods manufacturing, productivity rose 4.3 percent in 2004, as output rose 2.1 percent and hours fell 2.1 percent (tables B, 3, 4, and 5).

Hourly compensation of manufacturing workers increased 4.5 percent in 2004, compared to an 8.7-percent increase one year earlier. Hourly compensation increased 3.9 percent in durable goods industries and 5.3 percent in nondurable goods industries in 2004. Real hourly compensation in the manufacturing sector rose 1.8 percent in 2004, and 6.2 percent in 2003.

Unit labor costs declined 0.7 percent in manufacturing from 2003 to 2004. In durable manufacturing, unit labor costs fell 2.3 percent in 2004. By contrast, unit labor costs in nondurable manufacturing rose last year, by 1.0 percent.

REVISED MEASURES

Productivity and cost data for the fourth quarter and full year 2004 for business, nonfarm business, and manufacturing were revised to incorporate the most recent information. In addition, quarterly and annual measures for these sectors were revised back to 2000 to incorporate the annual benchmark adjustment and updated information on seasonal trends from the BLS nonfarm payroll series (appendix tables 1-5). Third-quarter 2004 measures of hourly compensation, real hourly compensation, and unit labor costs were revised to reflect new information on compensation from the National Income and Product Accounts. Quarterly measures of real hourly compensation during 2004 also reflect the recalculation of seasonal factors for the Consumer Price Index for All Urban Consumers (table C).

Percent change, 2003 - 2004

In fourth-quarter 2004, business sector productivity increased 3.7 percent compared to a preliminary estimate of 2.5 percent (seasonally adjusted annual rates). In the nonfarm business sector, productivity grew 2.1 percent, more than the 0.8 percent preliminary estimate published Feb. 3. Because hourly compensation growth was revised up less than productivity in business and nonfarm business, unit labor costs did not increase as much as reported Feb. 3. In the manufacturing sector, a small upward revision in output combined with a small downward revision in hours to produce an upward revision in output per hour from 5.6 percent to 5.8 percent. A similar upward revision in hourly compensation left unit labor costs unchanged.

Measures of hourly compensation, real hourly compensation, and unit labor costs in all sectors show substantially larger increases in the third quarter of 2004 after incorporation of revised compensation data.

When revised annual averages for 2004 are compared to those for 2003, productivity increased 4.0 percent in both the business and nonfarm business sectors--about the same as previously reported. Small upward revisions to hourly compensation in both of these sectors led to larger increases in unit labor costs than previously reported. Manufacturing productivity growth was revised up as hours declined faster than in the preliminary estimate. Because hourly compensation was revised up much more than productivity, unit labor costs decreased less than previously reported.

Revised measures: Nonfinancial corporations

Measures for the nonfinancial corporate sector also were revised back to 2000 due to updated information on hours worked by employees (appendix table 6). New information on output and compensation in the third quarter of 2004, and consumer prices in all quarters of 2004, also impacted measures for this sector (table 6).

Productivity in nonfinancial corporations in third-quarter 2004 increased more than in the preliminary estimates, as a large upward revision to output was partially offset by an upward revision to hours worked. Hourly compensation was revised up by more than productivity, and unit labor costs increased, rather than falling slightly, as reported Feb. 3. Unit profits were revised down, posting a small decline rather than the slight increase originally reported.

Third quarter 2004

Upcoming changes to productivity and cost data

Effective with the release of Productivity and Costs on June 2, 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. 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.