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

3.9 percent in the business sector and 3.7 percent in the nonfarm business sector.

In both sectors, the first-quarter productivity gains were larger than the preliminary estimates reported on May 4.

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

3.8 percent in manufacturing, 3.5 percent in durable goods manufacturing, and 3.7 percent in nondurable goods manufacturing.

Manufacturing productivity growth was slower in the first quarter of 2006 than reported on May 4, reflecting downward revisions to output per hour in both durable goods and nondurable goods industries. 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 increased 3.9 percent in the business sector from the fourth quarter of 2005 to the first quarter of 2006, as output increased 6.4 percent and hours worked by all persons grew 2.4 percent (seasonally adjusted annual rates). Productivity had increased 0.2 percent in the previous quarter, reflecting increases in output and hours of 1.8 percent and 1.6 percent, respectively (table 1).

Hourly compensation increased 5.4 percent during the first quarter of 2006, after declining 0.6 percent in the fourth quarter of 2005, as revised (seasonally adjusted annual rates). 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 3.3 percent in the first quarter of 2006, rebounding from a 3.8-percent drop in the previous quarter.

The change in unit labor costs approximates the change in hourly compensation less the change in productivity. In the first quarter of 2006, 5.4-percent growth in hourly compensation and 3.9-percent growth in productivity yielded a 1.5-percent rise in unit labor costs. Unit labor costs declined 0.8 percent in the fourth quarter of 2005, as revised. The implicit price deflator for business output, which reflects changes in both unit labor costs and unit nonlabor payments, grew by 2.8 percent in the first quarter of 2006.

Nonfarm business

Productivity rose 3.7 percent in the nonfarm business sector during the first quarter of 2006, as output increased 6.5 percent and hours of all persons increased 2.7 percent (table 2). The hours increase was larger than during any quarter in 2005. In fourth-quarter 2005, nonfarm productivity had declined 0.3 percent as output rose 1.5 percent and hours increased 1.8 percent.

Hourly compensation increased 5.3 percent in the first quarter of 2006. After revision, this measure decreased at a 0.9 percent annual rate in the fourth quarter of 2005--the first decline in nonfarm hourly compensation since 1994, when it fell 0.8 percent in the second quarter and 0.3 percent in the third quarter. When the rise in consumer prices is taken into account, real hourly compensation rose 3.2 in the first quarter and fell 4.1 percent in the fourth quarter.

Unit labor costs grew 1.6 percent during the first quarter of 2006, following a 0.6-percent decline in the fourth quarter of 2005, as revised. The implicit price deflator for nonfarm business output rose by 2.9 percent in the first quarter of 2006.

Manufacturing

Productivity increased 3.8 percent in manufacturing during the first quarter of 2006, reflecting similar performance in the durable and nondurable manufacturing subsectors. In durable goods industries, productivity rose 3.5 percent, as output grew 5.2 percent and hours rose 1.6 percent. In nondurable goods industries, productivity grew 3.7 percent, as output increased 6.7 percent and hours rose 2.9 percent (tables 3, 4, and 5).

Hourly compensation in manufacturing rose 1.9 percent during the first quarter, reflecting increases of 2.7 percent in the hourly compensation of persons in durable goods industries and 0.5 percent in the hourly compensation of workers in nondurable goods industries. Real hourly compensation, which takes account of changes in consumer prices, declined 0.2 percent for all manufacturing workers, as a 0.6-percent rise in durable manufacturing real hourly compensation was eclipsed by a 1.6-percent drop in the nondurable goods industries.

Unit labor costs fell 1.9 percent in manufacturing during the first quarter of 2006. In nondurable goods industries, productivity grew much faster than hourly compensation, and unit labor costs fell 3.1 percent. In durable goods industries, where hourly compensation increased faster than in nondurable manufacturing, unit labor costs declined only 0.9 percent.

Nonfinancial corporations

Preliminary first-quarter 2006 measures of productivity and costs for nonfinancial corporations also were announced today (tables B and 6). Productivity rose 3.7 percent in the first quarter, as output increased 5.8 percent and employee-hours rose 2.0 percent (seasonally adjusted annual rates). As revised, productivity had increased at a 2.4-percent annual rate in the fourth quarter of 2005, as output grew 5.0 percent and employee-hours rose 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 rose 5.0 percent during the first quarter of 2006, following a 0.8-percent decrease in the fourth quarter of 2005. As in the larger business sector, the fourth-quarter decline was the first since the third quarter of 1994 (0.2 percent). When the rise in consumer prices is taken into account, real hourly compensation increased 2.9 percent in the first quarter of 2006, and fell 4.0 percent in the fourth quarter of 2005. Unit labor costs in nonfinancial corporations rose 1.3 percent in the first quarter, after falling 3.2 percent one quarter earlier.

REVISED MEASURES

Previous and revised measures for the first quarter of 2006 in the business, nonfarm business, and manufacturing sectors are compared in table C. Productivity growth was revised up in the business and nonfarm business sectors from the preliminary estimates reported May 4, as output was revised up more than hours. In manufacturing, hours were revised up more than output, and productivity was revised down. Hourly compensation and real hourly compensation were revised down in all sectors for the first quarter of 2006. In the business and nonfarm business sectors, upward revisions to productivity and downward revisions to hourly compensation both contributed to slower first-quarter growth in unit labor costs than reported May 4. In manufacturing, because compensation per hour was revised down more than output per hour, unit labor costs fell slightly faster during the first quarter than previously reported.

In the fourth quarter of 2005, hourly compensation declined in all sectors, rather than increasing as reported May 4. Unit labor costs declined rather than increasing in the business and nonfarm business sectors, and fell faster in manufacturing than initially reported. For the year 2005, hourly compensation, real hourly compensation, and unit labor costs increased somewhat less in all sectors than in the preliminary estimates.

REVISED MEASURES: NONFINANCIAL CORPORATIONS

Fourth quarter and annual average 2005 measures also were revised for the nonfinancial corporate sector. In the fourth quarter of 2005, output and productivity were revised down substantially, and productivity rose 2.4 percent. Hourly compensation was revised down by more than productivity so unit labor costs fell faster than reported May 4, based on information then available. For the year 2005, productivity growth was revised down slightly to 4.9 percent. The increase in hourly compensation was revised down more than productivity--from 5.6 percent to 5.3 percent--and unit labor costs were revised down 0.1 percent.

Fourth quarter 2005

Annual average 2005