2005 Fourth 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.

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 fourth quarter and for the full year 2005. The seasonally adjusted annual rates of productivity change in the fourth quarter and the annual average changes were:

In the fourth quarter, productivity declined 0.2 percent in the business sector and 0.6 percent in the nonfarm business sector. In both sectors, the fourth-quarter productivity decline was the first since the first quarter of 2001. When the annual averages for 2005 were compared with annual averages for 2004, productivity rose 2.6 percent in the business sector and 2.7 percent in nonfarm businesses.

In the manufacturing sector, increases in productivity were:

Manufacturing productivity grew 3.9 percent in the fourth quarter. On an annual average basis, output per hour in the manufacturing sector posted a 4.8-percent increase in 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. Fourth-quarter productivity and related measures are summarized in table A, and annual average data in table B. Detailed information is presented 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 (page 8).

THIRD-TO-FOURTH QUARTER CHANGES, 2005

Business

Productivity in the business sector decreased by 0.2 percent in the fourth quarter of 2005, reflecting increases of 1.0 percent in output and 1.2 percent in hours of all persons (seasonally adjusted annual rates). Output per hour had increased 5.2 percent in the third quarter of 2005, as output increased 4.8 percent and hours decreased 0.4 percent. The fourth-quarter decline in business sector productivity was the first since the first quarter of 2001, when it fell 0.5 percent.

Hourly compensation grew 3.2 percent in the fourth quarter of 2005, down from a 4.6-percent increase one quarter earlier. 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, was unchanged in the fourth quarter of 2005, after declining 0.5 percent in the third quarter and 4.0 percent in the second quarter.

Unit labor costs, which relate hourly compensation to output per hour, increased 3.4 percent in the fourth quarter. Business sector unit labor costs had declined in the two previous quarters; 0.6 percent in the third quarter and 0.9 percent in the second quarter.

Nonfarm business

In the nonfarm business sector, productivity decreased 0.6 percent in the fourth quarter of 2005, as output grew 0.9 percent and hours of all persons grew 1.5 percent (seasonally adjusted annual rates). Productivity had increased 4.5 percent in the third quarter of 2005, reflecting a 4.7- percent rise in output and a 0.1-percent rise in hours of all persons (table 2). The fourth-quarter 0.6-percent decrease in productivity was the first since the first quarter of 2001 (-0.4 percent), and the largest since the third quarter of 2000 (-0.9 percent).

Hourly compensation in the nonfarm business sector rose 2.8 percent in the fourth quarter of 2005, following a 4.1-percent increase in the third quarter. When changes in consumer prices were taken into account, real hourly compensation declined 0.4 percent during the fourth quarter of 2005. This was the third consecutive decrease in this measure--real compensation per hour declined 1.0 percent in the third quarter and 3.1 percent in the second quarter of 2005.

Unit labor costs increased 3.5 percent in the fourth quarter of 2005, after falling 0.5 percent in the third quarter and 1.2 percent in the second quarter. The implicit price deflator for nonfarm business output increased 3.2 percent in the fourth quarter, after increasing 3.5 percent one quarter earlier.

Manufacturing

Manufacturing productivity grew 3.9 percent (seasonally adjusted annual rate) in the fourth quarter of 2005 as output increased 8.4 percent and hours increased 4.4 percent (table 3). The output increase was the largest since the fourth quarter of 1997 (9.3 percent) and the hours increase was the first since the first quarter of 2004, when hours increased 2.4 percent. In the third quarter, manufacturing productivity had increased 3.7 percent, reflecting a 2.6-percent rise in output and a 1.0-percent decline in hours. In durable goods manufacturing, productivity rose 8.2 percent in the fourth quarter as output grew 13.7 percent and hours increased 5.1 percent (table 4). Among nondurable goods manufacturers, productivity decreased 1.0 percent in the fourth quarter as output rose 2.1 percent and hours at work increased 3.2 percent (table 5).

Average hourly compensation of manufacturing workers increased 1.9 percent in the fourth quarter of 2005, reflecting increases in hourly compensation of 1.2 percent in durable goods manufacturing and 2.9 percent in nondurable goods manufacturing. When the increase in consumer prices was taken into account, real hourly compensation in total manufacturing fell 1.3 percent.

Unit labor costs for the manufacturing sector fell 1.9 percent in fourth- quarter 2005. In durable goods manufacturing, unit labor costs fell 6.4 percent, and in nondurable goods manufacturing unit labor costs increased 4.0 percent.

ANNUAL AVERAGE CHANGES, 2004-2005

Business

Business sector productivity increased 2.6 percent when the annual average for 2005 was compared with the annual average for 2004 (table B). Output increased 4.0 percent and hours of all persons engaged in the sector rose 1.3 percent. The 2.6-percent increase followed a 2002-2004 period with above-average annual productivity growth of 3.8 percent, and is more in-line with the productivity trend from 1995 to 2001, 2.7 percent.

Hourly compensation in the business sector increased 5.1 percent in 2005, following a 4.6-percent increase in 2004. Real hourly compensation increased 1.7 percent; 2005 was the fifth consecutive year with a real hourly compensation increase of less than 2.0 percent. Unit labor costs in the business sector rose 2.5 percent in 2005, more than in any year since 2000, when this measure grew 4.0 percent. The implicit price deflator for the business sector rose 2.6 percent in 2005 and 2.4 percent in 2004.

Nonfarm business

Productivity increased 2.7 percent in the nonfarm business sector in 2005, reflecting increases of 4.1 percent in output and 1.4 percent in hours. Like the more comprehensive business sector, nonfarm productivity from 2001 to 2004 had grown at an above-average rate-- 3.7 percent. Productivity had been growing at an annual rate of 2.5 percent from 1995 to 2001.

In 2005, hourly compensation increased 5.2 percent, following a 4.5- percent rise in 2004. When the increase in consumer prices was taken into account, real hourly compensation rose 1.8 percent in both 2005 and 2004.

Unit labor costs in the nonfarm business sector increased 2.4 percent in 2005--more than in any year since 2000, when unit labor costs increased 4.2 percent. The implicit price deflator for nonfarm business rose 2.8 percent in 2005 and 2.1 percent in 2004.

Manufacturing

In manufacturing, labor productivity rose 4.8 percent in 2005, as output grew 3.8 percent and hours of all persons declined 0.9 percent (table B). Productivity increased 5.4 percent in 2004, reflecting a 5.0-percent output increase and a 0.4-percent decline in hours. There was a 6.6-percent increase in durable goods manufacturing productivity in 2005, as output increased 6.3 percent and hours edged down 0.2 percent. Output per hour increased 2.9 percent in nondurable goods manufacturing, as output rose 0.7 percent and hours fell 2.1 percent.

Hourly compensation of manufacturing workers increased 6.6 percent in 2005, more than the 2.2-percent growth rate in 2004, but lower than the 8.3- percent increase in 2003 and the 7.3-percent increase in 2002. In 2005, hourly compensation rose 6.4 percent in durable goods manufacturing and 7.0 percent in nondurable good manufacturing. Taking into account the rise in consumer prices, real hourly compensation in manufacturing rose 3.2 percent in 2005 and fell 0.5 percent one year earlier.

Unit labor costs in manufacturing rose 1.7 percent in 2005, after decreasing 3.1 percent in calendar year 2004; unit labor costs increased 2.5 percent in 2003. Unit labor costs in durable goods manufacturing fell slightly in 2005, 0.2 percent, compared with a 4.0-percent rise in unit labor costs in nondurable goods manufacturing.

Revised Measures

Current and previous measures for the third quarter of 2005 for the business, nonfarm business, and manufacturing sectors are compared in table C. In the business and nonfarm business sectors, productivity and output growth in the third quarter were lower than reported on Dec. 6, and hours worked remained the same. In both of these sectors, hourly compensation also grew more than reported in December. Hourly compensation was revised up and productivity was revised down, both contributing to a decline in unit labor costs in the third quarter that was less than previously reported.

In the manufacturing sector, output and productivity were revised up in the third quarter, and hours of all persons were unchanged. Growth in hourly compensation was revised up more than productivity, and unit labor costs edged up slightly (0.1 percent) rather than declining by 0.3 percent.

Manufacturing sector productivity and costs measures reflect revised source data. Annual indexes of real output for manufacturing and its durable and nondurable goods components were revised by BLS due to incorporation of revised current-dollar industry value of production data from the U.S. Bureau of the Census. Incorporating the revised data impacted both quarterly and annual measures of output, productivity, and unit labor costs back to 1987. The largest revisions begin in 2001, and appendix tables 1-3 display quarterly and annual data for manufacturing, durable manufacturing, and nondurable manufacturing beginning in 2000. Annual historical data for total manufacturing and its subsectors are presented in appendix tables 4-6. Full quarterly and annual historical series are available on the BLS website.

Revised measures: Nonfinancial Corporations

Revised third-quarter productivity and output measures for nonfinancial corporations also were announced today. In the third quarter of 2005, increases in productivity, output, and hours were virtually the same as reported on Dec. 6. Hourly compensation was revised up, resulting in a larger increase in unit labor costs than previously reported (table D).

Third quarter 2005

The measure of real output for the nonfinancial corporate sector has been revised by the Bureau of Economic Analysis (BEA), U.S. Department of Commerce. As a result, several measures for this sector were revised back to the first quarter of 2002. Recent quarterly and annual data for nonfinancial corporations are shown in table 6. Appendix table 7 provides data for 2002. Full quarterly and annual historical series are available on the BLS website.