2005 Second Quarter (Revised) Productivity and Costs

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Second 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 second quarter of 2005. The seasonally adjusted annual rates of productivity change in the second quarter were:

0.7 percent in the business sector and 1.8 percent in the nonfarm business sector.

In both sectors, increases in productivity were smaller than reported on Aug. 9, as output was revised down and hours were revised up. (See table C.)

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

3.6 percent in manufacturing, 3.3 percent in durable goods manufacturing, and 4.4 percent in nondurable goods manufacturing.

In total manufacturing, the change in productivity was revised down from a preliminary estimate of 4.1 percent. 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. Second-quarter measures are summarized in table A and appear in detail in tables 1 through 5; the differences between these measures and the preliminary second-quarter figures issued on Aug. 9 are shown 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 independently prepared by the Board of Governors of the Federal Reserve System. See Technical Notes for further information on data sources.

Business

From the first quarter to the second quarter of 2005, productivity in the business sector grew 0.7 percent as output increased 4.0 percent and hours worked by all persons engaged in the sector--employees, proprietors, and unpaid family workers-- rose 3.2 percent (tables A and 1). The productivity increase is less than those posted for the previous five quarters; it is the smallest increase since a 0.3-percent rise was posted in the fourth quarter of 2003 (seasonally adjusted annual rates).

Hourly compensation in the business sector increased 3.3 percent in the second quarter of 2005 and 4.7 percent one quarter earlier (as revised). Hourly 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, fell 0.8 percent in the second quarter of 2005 after growing by 2.3 percent in the first quarter of the year.

Unit labor costs rose 2.6 percent in the second quarter of 2005. Although hourly compensation rose more in the first quarter 2005 than in the second quarter, the larger increase in labor productivity in the first quarter offset more of the increase in labor costs and unit labor costs in the first quarter grew more slowly, 1.7 percent, than the 2.6-percent increase in the second quarter. The implicit price deflator for the business sector rose 2.4 percent in the second quarter and 2.7 percent in the first quarter.

Nonfarm business

Productivity in the nonfarm business sector grew at a 1.8 percent annual rate in the second quarter of 2005, reflecting increases of 4.1 percent in output and 2.2 percent in hours of all persons (tables A and 2). The second quarter increase was one of the smaller increases posted in the nonfarm business sector since the business-cycle peak in the first quarter of 2001; productivity growth over the period has risen at an average annual rate of 3.5 percent.

Hourly compensation rose 4.4 percent in the second quarter of 2005, following a 5.5 percent advance in the first quarter. When the rise in consumer prices was taken into account, real hourly compensation edged up 0.2 percent in the second quarter of 2005.

Unit labor costs increased 2.5 percent in the second quarter of 2005, somewhat more than the 2.2-percent increase posted in the first quarter of the year. The implicit price deflator for nonfarm business output rose 2.4 percent in the second quarter of 2005 and 3.0 percent one quarter earlier.

Manufacturing

In the second quarter of 2005, productivity increased 3.6 percent in manufacturing, as output increased 0.8 percent and hours of all persons fell 2.7 percent (seasonally adjusted annual rates). In the durable goods sector, productivity grew 3.3 percent in the second quarter of 2005, reflecting an increase in output of 1.5 percent and a drop in hours of 1.8 percent. In nondurable goods, output per hour rose 4.4 percent as output was unchanged and hours declined 4.2 percent (tables 3, 4, and 5). Hours of all persons in the nondurable manufacturing sector have declined in every quarter since the third quarter of 1999.

The hourly compensation of all manufacturing workers increased 8.4 percent during the second quarter of 2005, reflecting an 8.2-percent rise in hourly compensation in durable goods industries and an 8.6-percent increase in the nondurable goods sector. Real hourly compensation in the total manufacturing sector rose 4.1 in the second quarter and 4.6 percent one quarter earlier.

Unit labor costs in manufacturing increased 4.7 percent in the second quarter of 2005, more than they had in the first quarter, when they rose 2.8 percent. Unit labor costs grew 4.8 percent in durable goods and 4.0 percent in nondurable goods in the second quarter of 2005.

Nonfinancial corporations

Preliminary second quarter 2005 measures of productivity and costs were reported today for nonfinancial corporations (tables B and 6). Productivity increased 6.8 percent during the second quarter, reflecting a 9.5-percent rise in output and 2.6 percent growth in employee hours (seasonally adjusted annual rates). In the first quarter of 2005, output per hour rose 2.7 percent (as revised), reflecting increases of 3.3 percent in output and 0.5 percent in employee hours. Nonfinancial corporations include all corporations doing business in the United States except those classified as offices in the finance and insurance sector, offices of bank holding companies, or offices of other holding companies.

Hourly compensation rose 4.0 percent in the second quarter of 2005, following a 5.9 percent gain in the first quarter. When the rise in consumer prices is taken into account, real hourly compensation was little changed in the second quarter and rose 3.5 percent one quarter earlier.

Unit labor costs for nonfinancial corporations dropped 2.6 percent in the second quarter after increasing by 3.1 percent in the first quarter. Unit profits grew 43.2 percent in second quarter, 2005, the largest one- quarter increase since a 51.0 percent rise in the fourth quarter of 2002. The implicit price deflator for nonfinancial corporate output rose 1.3 percent in the second quarter of 2005.

Revised Measures

Current and previous measures for the second quarter of 2005 for the business, nonfarm business, and manufacturing sectors are compared in table C. The quarterly movements differ from those reported on Aug. 9 based on information then available. In the business and nonfarm business sectors and the manufacturing sector, productivity and output were revised down and hours of all persons were revised up. Hourly compensation and unit labor costs in all of these sectors were revised up.

Hourly compensation growth in the first quarter also was revised to reflect new estimates of compensation. In the business and nonfarm business sectors, hourly compensation grew more slowly in the first quarter than reported in August. As a result, unit labor costs in these sectors now grow less than previously reported. In the manufacturing sector, hourly compensation data for the first quarter are similar to those reported earlier.

Revised Measures: Nonfinancial Corporations

Data for the first quarter of 2005 were revised for the nonfinancial corporate sector. Productivity, output, hourly compensation, and unit labor costs grew more slowly than reported on August 9.

First quarter 2005