2005 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 2005, 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 2005. The seasonally adjusted annual rates of productivity change in the first quarter were:

2.1 percent in the business sector and 2.6 percent in the nonfarm business sector.

Productivity in the business sector grew more slowly than in the fourth quarter of 2004, when it increased 3.7 percent. In the nonfarm business sector, however, productivity increased more in the first quarter than it had in the previous quarter. Nonfarm business labor productivity increased 2.1 percent in the fourth quarter of 2004.

In manufacturing, productivity changes in the first quarter were:

3.9 percent in manufacturing, 6.3 percent in durable goods manufacturing, and 1.3 percent in nondurable goods manufacturing.

Productivity growth in manufacturing in the first quarter of 2005 reflected a 3.3-percent increase in output and a drop of 0.7 percent in hours worked in the sector. 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 2.1 percent in the first quarter 2005, as output grew 3.6 percent and hours of all persons engaged in the sector increased 1.5 percent (seasonally adjusted annual rates). Revised data for the fourth quarter of 2004 show that output per hour increased 3.7 percent, reflecting a 4.3-percent rise in output and a 0.6-percent increase in hours at work. (See table 1.)

Hourly compensation increased 4.3 percent during the first quarter of 2005. This measure includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Hourly compensation had risen 4.9 percent in the previous quarter. However, real hourly compensation, which takes into account changes in consumer prices, increased faster in the first quarter of 2005, 1.9 percent, than in the fourth quarter of 2004, when it rose 1.3 percent.

Unit labor costs rose 2.2 percent in the first quarter of 2005, more rapidly than the 1.1-percent increase in the fourth quarter. Growth in unit labor costs is roughly equivalent to the change in hourly compensation offset by 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 2.8 percent in the first quarter. In the previous quarter, the implicit price deflator for business sector output increased 2.4 percent.

Nonfarm business

Productivity rose 2.6 percent in the nonfarm business sector in first- quarter 2005 as output grew 3.6 percent and hours of all persons increased by 1.0 percent (seasonally adjusted annual rates). In the fourth quarter of 2004, productivity had risen 2.1 percent, reflecting increases in output and hours of 3.7 and 1.6 percent, respectively. (See table 2.)

Hourly compensation increased 4.8 percent in the first quarter of 2005, more rapidly than in the fourth quarter, when it grew 3.8 percent. When the rise in consumer prices was taken into account, real hourly compensation rose 2.4 percent in the first quarter, up from 0.2 percent in the fourth quarter of 2004.

Unit labor costs grew 2.2 percent in the first quarter of 2005, more rapidly than the 1.7-percent rise of the previous quarter. The implicit price deflator for nonfarm business output rose 2.9 percent in the first quarter and 2.5 percent one quarter earlier.

Manufacturing

Productivity increased 3.9 percent in manufacturing in the first quarter of 2005, as output increased 3.3 percent and hours of all persons fell 0.7 percent (seasonally adjusted annual rates). This is the fourth consecutive quarter in which output has risen and hours have decreased. (See table 3.) Productivity rose 6.3 percent in durable goods manufacturing, reflecting 5.8- percent growth in output and a 0.4 percent decrease in all person hours. In nondurable goods manufacturing, productivity grew more slowly, 1.3 percent, in the first quarter of 2005 as output edged up 0.3 percent and hours of all persons fell 1.0 percent. The first quarter increase in labor productivity was the smallest in nondurable goods manufacturing since a 4.5-percent drop in the fourth quarter of 2002. Hours in that sector have declined in every quarter since the second quarter of 1999, when they increased 1.2 percent.

The hourly compensation of all manufacturing workers rose 4.9 percent during the first quarter, and real hourly compensation increased 2.5 percent. The 4.9-percent hourly compensation rise reflects a change of 5.3 percent in durable goods and 3.9 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 0.9 percent. This is similar to the 0.8-percent increase recorded in the fourth quarter of 2004. In durable goods manufacturing, however, unit labor costs fell in the first quarter of 2005, dropping 0.9 percent. All of the increase in manufacturing unit labor costs came from the nondurable goods subsector, where unit labor costs grew 2.6 percent.

Fourth-quarter and annual measures for nonfinancial corporations

Fourth-quarter and annual 2004 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 5.3 percent from the third to the fourth quarter of 2004, as output grew 6.7 percent and employee hours increased 1.3 percent. 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 in this sector increased 4.4 percent in the fourth quarter, and real hourly compensation rose 0.8 percent. Unit labor costs fell 0.8 percent in the fourth quarter of 2004--the first decline in these costs since the fourth quarter of 2003. In the fourth quarter of 2004, unit profits grew 38.5 percent after falling slightly, 0.8 percent, in the previous quarter. The implicit price deflator for nonfinancial corporate output grew 2.2 percent during the fourth quarter of 2004, up from the 0.2- percent increase in the third quarter.

In calendar year 2004, productivity in the nonfinancial corporate sector grew 3.9 percent, following an increase of 4.2 percent in the previous year. (See table C.) When combined with the 3.9-percent increase in 2002, this marks the fastest three-year increase in productivity--an average of 4.0 percent a year--in the history of the series, which begins in 1958. Nonfinancial corporate output grew 5.4 percent in 2004, and employee hours increased 1.4 percent. This was the first increase in employee hours since 2000, when they grew 1.5 percent.

Hourly compensation grew 4.4 percent in 2004, and real hourly compensation increased 1.7 percent. Total unit costs declined 0.1 percent, reflecting a 0.5-percent rise in unit labor costs and a 1.6-percent drop in unit nonlabor costs. Unit profits rose 20.0 percent in 2004. The implicit price deflator, which reflects both the unit costs and unit profits measures, rose 1.8 percent in 2004.

Revised measures

Current and previous measures for the fourth quarter and annual average of 2004 in the business, nonfarm business, and manufacturing sectors are compared in table D. Some of the quarterly movements differ from those reported on March 3. In the business and nonfarm business sectors, productivity, output and hours are little changed from what was reported previously. However, hourly compensation and unit labor costs increased faster in the fourth quarter than reported on March 3. Productivity in the manufacturing sector grew more rapidly in the fourth quarter 2004, 6.3 percent, than previously reported due to both an upward revision to output and a downward revision to hours. Hourly compensation was revised up more than productivity. As a result, unit labor costs grew faster, 0.8 percent, than reported on March 3.

All of the 2004 annual average annual productivity and cost measures reported for the business and nonfarm business sectors and for manufacturing are similar to those reported in March.

The Consumer Price Index Research Series has been updated and new seasonal factors applied to it. Real hourly compensation measures are revised beginning with 2000. See appendix tables 1-6.