2005 Third 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.

Third 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 third quarter of 2005. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were:

4.8 percent in the business sector and 4.1 percent in the nonfarm business sector.

Productivity increased 4.8 percent in the business sector, as output grew 4.3 percent and hours declined 0.4 percent. The 4.1-percent rise in nonfarm business productivity occurred as output rose 4.2 percent and hours rose 0.1 percent (table A).

The effects of Hurricanes Katrina and Rita, which struck the Gulf Coast during the third quarter, could not be separately identified in the productivity and costs measures. The measures reported in this news release reflect both these effects and ongoing trends in ouput, hours, and compensation.

In manufacturing, productivity increases in the third quarter were:

4.5 percent in manufacturing, 7.5 percent in durable goods manufacturing, and 1.7 percent in nondurable goods manufacturing.

The third-quarter increase in manufacturing productivity followed a 3.6- percent increase in the second quarter of 2005. 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. Third-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

From the second quarter to the third quarter of 2005, productivity in the business sector grew at a 4.8 percent seasonally adjusted annual rate. Output increased 4.3 percent, while hours of all persons engaged in the sector declined 0.4 percent. The third-quarter productivity increase was much faster than the 0.8-percent gain recorded in the second quarter of 2005 (as revised), which reflected a 4.0-percent rise in output and a 3.1-percent rise in hours. (tables B and 1).

Hourly compensation in the business sector increased at an annual rate of 4.2 percent during the third quarter of 2005, faster than the 3.0-percent rise one quarter earlier ( as revised). 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, fell by 0.9 percent in the third quarter of 2005 after falling by 1.1 percent in the second quarter. It had increased 2.3 percent in the first quarter of the year.

Unit labor costs, which reflect changes in both hourly compensation and productivity, declined 0.6 percent during the third quarter. By contrast, this measure had increased 2.2 percent in the second quarter. The implicit price deflator for the business sector increased 3.0 percent during the third quarter of 2005, following a 2.6 percent increase in the previous quarter.

Nonfarm business

Productivity in the nonfarm business sector grew 4.1 percent during the third quarter of 2005 as output grew 4.2 percent. Hours of all persons in the nonfarm business sector edged up 0.1 percent, reflecting a 0.4-percent gain in employment and a 0.4-percent decline in average weekly hours at work. In the previous quarter, nonfarm business productivity increased 2.1 percent, as output grew 4.4 percent and hours worked increased by 2.2 percent (table 2).

Hourly compensation increased at a 3.6 percent annual rate in the third quarter of 2005. When the rise in consumer prices is taken into account, real hourly compensation fell 1.4 percent during the July-September period. During the second quarter of 2005, real hourly compensation had declined 0.1 percent.

Unit labor costs in the nonfarm business sector fell 0.5 percent during the third quarter of 2005, after rising 1.8 percent in the second quarter. The implicit price deflator for nonfarm business output rose 3.3 percent in the third quarter of 2005.

Manufacturing

Productivity increased 4.5 percent in manufacturing in the third quarter of 2005 as output grew 3.1 percent and hours of all persons fell 1.4 percent (seasonally adjusted annual rates). In durable goods industries, productivity and output both grew 7.5 percent in the third quarter while hours of all persons were unchanged. Productivity increased 1.7 percent in nondurable goods, where output fell 2.1 percent but hours fell faster, 3.7 percent (tables 3, 4, and 5).

The hourly compensation of manufacturing workers increased an average of 2.9 percent during the third quarter of 2005, reflecting increases of 2.4 percent in durable goods and 3.4 percent in nondurable goods. When the increase in consumer prices is taken into account, real hourly compensation in total manufacturing fell 2.1 percent in the third quarter. Real hourly compensation had grown in the first two quarters of 2005; 3.6 percent in the second quarter (as revised) and 4.6 percent in the first quarter.

Unit labor costs in manufacturing fell 1.6 percent in the third quarter of 2005, after rising in each of the previous four quarters. In the durable goods sector, unit labor costs fell 4.7 percent in the third quarter after increasing 4.0 percent one quarter earlier. In the nondurable goods sector, unit labor costs rose 1.7 percent in the third quarter and 4.0 percent in the second quarter of 2005.

Revised Measures

Revised and previous measures for the second quarter of 2005 for the business, nonfarm business, and manufacturing sectors are compared in table B. Hours data for the second quarter now reflect more current data on the ratio of hours worked to hours paid in private nonfarm businesses.

In the business sector, productivity, output, and hours grew about the same as reported on Sept. 7, based on information then available. In the nonfarm sector, growth in productivity and output was revised up while the increase in hours remained the same. Productivity was unchanged in the manufacturing sector, reflecting offsetting small upward revisions to output and hours. In all three sectors, hourly compensation and unit labor costs were revised down.

Revised measures: Nonfinancial Corporations

Productivity and cost measures for nonfinancial corporations for the second quarter of 2005 also were revised to incorporate more recent information than was available on Sept. 7.

Second quarter 2005

Productivity grew at an annual rate of 6.3 percent in second-quarter 2005, compared with the increase of 6.8 percent reported previously. This was the result of a downward revision in output growth, from 9.5 percent to 9.0 percent, as hours growth was unchanged. Unit labor costs fell more slowly than reported previously, as hourly compensation was revised down less than productivity. Unit profits increased slightly less than reported on Sept. 7. (tables C and 6).