2006 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 2006, 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 2006. The seasonally adjusted annual rates of productivity change in the first quarter were:

3.4 percent in the business sector and 3.2 percent in the nonfarm business sector.

Productivity in the business sector grew faster in the first quarter of 2006 than in the fourth quarter of 2005, when it increased 0.2 percent (as revised). In the nonfarm business sector, productivity had declined by 0.3 percent in the fourth quarter of 2005. In both sectors, output and hours worked grew faster in the first quarter of 2006 than they had in the fourth quarter of 2005.

In manufacturing, productivity changes in the first quarter were:

4.2 percent in manufacturing, 3.8 percent in durable goods manufacturing, and 4.4 percent in nondurable goods manufacturing.

Productivity growth in manufacturing in the first quarter of 2006 reflected a 5.8-percent increase in output and a 1.6-percent increase 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 3.4 percent in the first quarter of 2006, as output grew 5.8 percent and hours of all persons at work in the sector increased 2.3 percent (seasonally adjusted annual rates). Revised data for the fourth quarter of 2005 show that output per hour increased 0.2 percent, reflecting a 1.8-percent rise in output and a 1.6- percent increase in hours at work. (See table 1.)

Hourly compensation increased 5.8 percent during the first quarter of 2006. This measure includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Hourly compensation had risen 3.0 percent in the previous quarter. Real hourly compensation, which takes into account changes in consumer prices, increased 3.6 percent in the first quarter of 2006, after declining 0.3 percent in the fourth quarter of 2005.

Unit labor costs rose 2.3 percent in the first quarter of 2006, compared to a 2.8-percent increase in the fourth quarter. Growth in unit labor costs is roughly equivalent to the change in hourly compensation minus 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 2.7 percent in the first quarter. In the previous quarter, the implicit price deflator for business sector output increased 3.5 percent.

Nonfarm business

Productivity rose 3.2 percent in the nonfarm business sector in first- quarter 2006 as output grew 5.8 percent and hours of all persons increased by 2.5 percent (seasonally adjusted annual rates). In the fourth quarter of 2005, productivity had declined 0.3 percent, reflecting increases in output and hours of 1.5 percent and 1.8 percent, respectively. (See table 2.)

Hourly compensation increased 5.7 percent in the first quarter of 2006, more rapidly than in the fourth quarter, when it grew 2.7 percent. When the rise in consumer prices was taken into account, real hourly compensation rose 3.6 percent in the first quarter, in contrast to a 0.6-percent decline in the fourth quarter of 2005.

Unit labor costs grew 2.5 percent in the first quarter of 2006, following a 3.0-percent rise one quarter earlier. The implicit price deflator for nonfarm business output rose 2.8 percent in the first quarter of 2006 and 3.6 percent in the fourth quarter of 2005.

Manufacturing

Productivity increased 4.2 percent in manufacturing in the first quarter of 2006, as output increased 5.8 percent and hours of all persons rose 1.6 percent (seasonally adjusted annual rates). Manufacturing hours had also increased in the fourth quarter of 2005, 4.6 percent, after six consecutive quarterly declines (See table 3.) The 3.8-percent increase in durable goods manufacturing in the first quarter was the smallest since a 3.7 percent rise in the fourth quarter of 2003, and reflected growth in output and hours of 4.7 percent and 0.9 percent, respectively. Productivity grew faster in nondurable goods manufacturing than in durable goods industries in the first quarter, 4.4 percent, as output jumped 7.3 percent and hours of all persons increased 2.7 percent.

The hourly compensation of all manufacturing workers increased 2.4 percent during the first quarter of 2006, and real hourly compensation rose 0.3 percent (seasonally adjusted annual rates). The 2.4-percent hourly compensation increase reflected a 3.3-percent gain in durable goods hourly compensation and a 1.0 percent rise in compensation per hour in nondurable goods industries. This was the smallest increase in nondurable manufacturing hourly compensation since the first quarter of 2004, when it rose 0.8 percent.

Because the productivity of manufacturing workers rose more rapidly than their hourly compensation, unit labor costs decreased in the first quarter, by 1.7 percent. Unit labor costs in manufacturing have fallen in three of the last four quarters. Unit labor costs declined 0.5 percent in durable goods manufacturing in the first quarter of 2006, less than in the nondurable goods subsector, where these costs fell 3.3 percent.

Fourth-quarter and annual measures for nonfinancial corporations

Fourth-quarter and annual 2005 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 4.6 percent from the third to the fourth quarter of 2005, as output grew 7.3 percent and employee hours increased 2.5 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 2.5 percent in the fourth quarter, but when consumer prices are taken into account, real hourly compensation fell 0.8 percent. Unit labor costs fell 2.0 percent in the fourth quarter of 2005. Unit profits grew 47.1 percent in the fourth quarter of 2005 after falling 8.8 percent in the previous quarter. The implicit price deflator for nonfinancial corporate output grew 1.7 percent during the fourth quarter of 2005 after rising 2.1 percent in the third quarter.

In calendar year 2005, productivity in the nonfinancial corporate sector grew 5.0 percent--the largest annual increase in the history of the series, which begins in 1959. Output per hour had increased 4.0 percent in 2004, 4.3 percent in 2003, and 3.9 percent in 2002. When the annual average for 2005 is compared to that for 2001, productivity growth in nonfinancial corporations averaged 4.3 percent per year. Nonfinancial corporate output grew 6.5 percent in 2005, compared to 5.5-percent growth in 2004. Employee hours increased 1.4 percent in each of the last two years. (See table C.)

Hourly compensation grew 5.6 percent in 2005, and real hourly compensation increased 2.1 percent. These were the largest increases in both of these series since 2000, when compensation per hour increased 6.8 percent and real hourly compensation grew 3.3 percent. Total unit costs declined 0.2 percent, reflecting a 0.5-percent rise in unit labor costs and a 2.3-percent drop in unit nonlabor costs. The rise in unit labor costs was the first since 2001, when these costs increased 2.4 percent. Unit profits rose 14.7 percent in 2005. The implicit price deflator, which reflects both the unit costs and unit profits measures, rose 1.4 percent in 2005.

Revised measures

Current and previous measures for the fourth quarter and annual average of 2005 in the business, nonfarm business, and manufacturing sectors are compared in table D. Some of the quarterly movements differ from those reported on March 7. In the business and nonfarm business sectors, productivity was revised up slightly, as hours were revised down. Small downward revisions to fourth-quarter hourly compensation and incorporation of updated information on consumer prices led to larger declines in real hourly compensation than reported March 7. The upward revisions to productivity and downward revisions to hourly compensation resulted in smaller increases in unit labor costs in the business and nonfarm business sectors than previously reported.

Fourth-quarter productivity growth in the manufacturing sector was not changed from the previous estimate due to offsetting upward revisions to output and hours. A downward revision to compensation, combined with the upward revision to hours, produced a smaller increase in hourly compensation, and a larger decrease in real hourly compensation, than reported March 7. The downward revision to hourly compensation led to a larger decline in unit labor costs than previously reported.

All of the 2005 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 2001. See appendix tables 1-6.