2005 First 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.

First Quarter 2005, Revised

The Bureau of Labor Statistics of the U.S. Department of Labor today reported revised productivity data--as measured by output per hour of all persons--for the first quarter of 2005. The revised seasonally adjusted annual rates of productivity change in the first quarter were:

2.6 percent in the business sector and 2.9 percent in the nonfarm business sector.

In both sectors, the first-quarter productivity gains were somewhat higher than those reported initially on May 5.

In manufacturing, the revised productivity changes in the first quarter were:

4.4 percent in manufacturing, 6.3 percent in durable goods manufacturing, and 2.4 percent in nondurable goods manufacturing.

Manufacturing productivity growth was faster than reported on May 5, reflecting an upward revision to productivity in nondurable goods manufacturing. Productivity growth in durable goods manufacturing was unchanged from the figure released last month. 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.

This release reports revised data on hours at work and related measures, including productivity and hourly compensation. The hours revision reflects implementation of a new methodology which utilizes information on employment and hours by primary and secondary job of nonfarm proprietors and unpaid family workers, all persons working in the farm sector, and all employees of government enterprises. These data are collected in the BLS Current Population Survey. See Change in Methodology.

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 increased 2.6 percent in the business sector from the fourth quarter of 2004 to the first quarter of 2005, as output increased 4.0 percent and hours worked by all persons grew 1.4 percent (seasonally adjusted annual rates). Productivity had increased 3.8 percent in the previous quarter, reflecting increases in output and hours of 4.3 percent and 0.5 percent, respectively (table 1).

Hourly compensation increased 6.0 percent during the first quarter of 2005, after having increased 11.1 percent in the fourth quarter of 2004, as revised (seasonally adjusted annual rates). The fourth quarter increase was the largest in the sector since a 14.1-percent increase in the first quarter of 2000. This measure of compensation 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 by 3.5 percent in the first quarter of 2005, down from a 7.3- percent rise in the previous quarter.

Unit labor costs increased 3.3 percent during the first quarter of 2005, following a jump of 7.1 percent in the fourth quarter of 2004. The change in unit labor costs approximates the change in hourly compensation less the change in productivity. The implicit price deflator for business output, which reflects changes in both unit labor costs and unit nonlabor payments, grew by 2.6 percent in the first quarter of 2005.

Nonfarm business

Productivity rose 2.9 percent in the nonfarm business sector during the first quarter of 2005, reflecting a 4.0-percent rise in output and a 1.1- percent increase in hours of all persons (table 2). In fourth-quarter 2004, nonfarm productivity grew 2.3 percent as output grew 3.7 percent and hours increased 1.4 percent.

Hourly compensation increased 6.3 percent in the first quarter of 2005. After revision, this measure grew at a 10.2 percent annual rate in the fourth quarter of 2004--faster than in any quarter since the first quarter of 2000, when hourly compensation increased 14.5 percent. When the rise in consumer prices is taken into account, real hourly compensation rose 3.9 in the first quarter of 2005. Real hourly compensation had increased 6.4 percent in the previous quarter.

Unit labor costs grew 3.3 percent during the first quarter of 2005, less than the 7.7-percent increase in the fourth quarter, as revised. The implicit price deflator for nonfarm business output rose by 2.8 percent in the first quarter of 2005.

Manufacturing

Productivity rose 4.4 percent in manufacturing in the first quarter of 2005, as output grew 3.5 percent and working hours of all persons declined 0.9 percent (seasonally adjusted annual rates). In durable goods industries, productivity grew 6.3 percent, as output expanded 5.5 percent and hours fell 0.8 percent. In nondurable goods industries, productivity rose 2.4 percent, reflecting a 1.3 percent increase in output and a 1.1 percent decrease in hours (tables 3, 4, and 5).

Hourly compensation in manufacturing rose 6.2 percent during the first quarter. This increase reflects a rise of 6.5 percent in the hourly compensation of persons in durable goods industries and an increase of 5.7 percent in the hourly compensation of workers in nondurable goods industries. Real hourly compensation, which takes account of changes in consumer prices, rose 3.8 percent for all manufacturing workers.

Unit labor costs rose 1.7 percent in manufacturing during the first quarter. In durable goods industries, rapid productivity growth offset most of the increase in hourly compensation and unit labor costs increased by just 0.2 percent. In nondurable goods industries, where productivity grew at a slower rate in the first quarter, unit labor costs rose 3.2 percent.

Nonfinancial corporations

Preliminary first-quarter 2005 measures of productivity and costs for nonfinancial corporations also were announced today (tables B and 6). Productivity rose 2.7 percent in the first quarter, as output increased 3.2 percent and employee-hours rose 0.5 percent (seasonally adjusted annual rates). As revised, productivity had increased at a 9.0-percent annual rate in the fourth quarter of 2004, as output grew 10.5 percent and employee-hours rose 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 rose 6.8 percent during the first quarter of 2005, following a 10.2 percent increase in the fourth quarter of 2004 that was the largest gain since first-quarter 2000, when compensation per hour increased 15.2 percent (seasonally adjusted annual rates). When the rise in consumer prices is taken into account, real hourly compensation increased 4.4 percent in the first quarter of 2005. Unit labor costs in nonfinancial corporations rose 4.1 percent in the first quarter, more than in any quarter since third- quarter 2000, when they increased 4.9 percent.

REVISED MEASURES

Previous and revised measures for the first quarter of 2005 in the business, nonfarm business, and manufacturing sectors are compared in table C. Productivity was revised up somewhat in all three sectors, due primarily to upward revisions in output as hours revisions were small. Hourly compensation and real hourly compensation were revised up in all sectors for the first quarter of 2005. Unit labor costs were revised up less than hourly compensation because compensation costs were somewhat offset by the upward revisions to productivity.

The BLS also announced revised results for the fourth quarter and annual average of 2004. Productivity growth in the fourth quarter of 2004 was revised up slightly for the business and nonfarm business sectors, reflecting small downward revisions to hours. On the other hand, both sectors showed a 0.1 percentage-point decline for the year 2004, due to small upward revisions to annual average hours. In the manufacturing sector, changes in productivity, output, and hours were the same as reported May 5 for fourth- quarter and annual average 2004.

In all three sectors, hourly compensation and unit labor costs grew much more rapidly during the fourth quarter of 2004 than announced on May 5. In the business sector, hourly compensation growth was revised up from 4.9 percent to 11.1 percent and unit labor costs were revised up from 1.1 percent to 7.1 percent. In nonfarm business, hourly compensation growth went from 3.8 percent to 10.2 percent and unit labor costs went from 1.7 percent to 7.7 percent. In the manufacturing sector, hourly compensation growth was revised up from 7.1 percent to 10.4 percent and the increase in unit labor costs was revised up from 0.8 percent to 3.9 percent. The revisions to fourth quarter data were large enough to change movements in the annual averages for these measures. For the full year 2004, both hourly compensation and unit labor costs increased more than previously reported in the business and nonfarm business sectors. In the manufacturing sector, hourly compensation increased 0.2 percentage point more--and unit labor costs declined 0.2 percentage-point less--than originally reported.

The entire historical series of hours and related measures were also subject to revision due to a methodological change in the way hours are computed. At the aggregate level, trends in hours, and ratios based on hours, are very close to those in the previously-published measures. (See Change in Methodology, and appendix tables.)

REVISED MEASURES: NONFINANCIAL CORPORATIONS

Fourth quarter and annual average 2004 measures also were revised for the nonfinancial corporate sector. In the fourth quarter of 2004, output and productivity were revised up sharply, and productivity rose 9.0 percent. Hourly compensation was revised up by more than productivity so unit labor costs also were revised up, and now show an increase of 1.1 percent rather than a decline of 0.8 percent. For the year 2004, productivity growth was revised up from 3.9 percent to 4.2 percent, due entirely to an upward revision to output growth from 5.4 percent to 5.6 percent. The 2004 increase in hourly compensation was revised up slightly more than productivity--from 4.4 percent to 4.8 percent--and unit labor costs were revised up 0.1 percent.

Fourth quarter 2004

Annual average 2004

Change in Methodology

The Bureau of Labor Statistics has used Current Population Survey (CPS) data to measure the hours of nonfarm proprietors and unpaid family workers, all persons working in the farm sector, and all employees of government enterprises using the hours worked by people whose main job falls into these categories. Effective with this release of Productivity and Costs, hours for primary and secondary jobs held by persons working more than one job will be processed separately and assigned to the appropriate class of worker for each job, rather than assigning all hours to the primary job. Hours worked in a second job as a nonfarm employee by a proprietor (or other selected category of worker for whom our source is the CPS) are deducted to avoid double- counting. Conversely, hours worked as a proprietor in a secondary job by a person who is primarily an employee are now included. This multiple-jobholder adjustment yields an improved measure of hours at work by sector and industry and the employment series approximates a count of jobs rather than persons. This adjustment has not yet been implemented within the manufacturing sector, where there are very few proprietors.