2006 Second 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.

Second 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 second quarter of 2006. The seasonally adjusted annual rates of productivity change in the second quarter were:

1.5 percent in the business sector and 1.6 percent in the nonfarm business sector.

In both sectors increases in productivity were larger than reported on Aug. 8, as output was revised up more than hours (See table C).

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

2.6 percent in manufacturing, 3.7 percent in durable goods manufacturing, and 2.3 percent in nondurable goods manufacturing.

In total manufacturing, the change in productivity was revised down from a preliminary estimate of 3.0 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. 8 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 2006, productivity in the business sector grew 1.5 percent as output increased 3.2 percent and hours worked by all persons engaged in the sector--employees, proprietors, and unpaid family workers--rose 1.7 percent (tables A and 1). Productivity had increased 4.5 percent during the first quarter of 2006, as output increased 6.7 percent and hours increased 2.1 percent (seasonally adjusted annual rates).

Hourly compensation in the business sector grew at a 6.3 percent annual rate in the second quarter of 2006, compared with a 13.6 percent rate of growth 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, rose 1.3 percent in the second quarter of 2006 after increasing 11.3 percent in the first quarter of the year.

Unit labor costs, which reflect changes in hourly compensation and productivity, rose 4.8 percent in the second quarter of 2006. Unit labor costs had increased 8.7 percent in the first quarter of 2006, when hourly compensation grew much faster than output per hour. The implicit price deflator for business output, which exhibits changes in unit labor costs and unit nonlabor payments, rose 3.1 percent in the second quarter and 2.7 percent in the first quarter of 2006.

Nonfarm business

Productivity in the nonfarm business sector grew at a 1.6 percent annual rate in the second quarter of 2006, reflecting increases of 3.1 percent in output and 1.5 percent in hours of all persons (tables A and 2). In the first quarter of 2006, productivity gained 4.3 percent, output increased 6.7 percent, and hours grew 2.3 percent.

Hourly compensation rose 6.6 percent in the second quarter of 2006, following a 13.7 percent advance in the first quarter. When the rise in consumer prices was taken into account, real hourly compensation rose 1.6 percent in the second quarter of 2006.

Unit labor costs increased 4.9 percent in the second quarter of 2006, somewhat less than the 9.0-percent increase posted in the first quarter of the year. The implicit price deflator for nonfarm business output increased 3.4 percent in the second quarter of 2006 and 2.9 percent one quarter earlier.

Manufacturing

Productivity increased 2.6 percent in manufacturing for the second quarter of 2006, as output grew 5.1 percent and hours of all persons increased 2.4 percent (seasonally adjusted annual rates). In the durable goods sector, productivity grew 3.7 percent in the second quarter of 2006, reflecting increases in output and hours of 7.7 percent and 3.9 percent, respectively. In nondurable goods, output per hour rose 2.3 percent as output increased 2.1 percent and hours declined 0.2 percent (tables 3, 4, and 5). The hourly compensation of all manufacturing workers increased 4.0 percent during the second quarter of 2006, reflecting a 4.2-percent rise in hourly compensation in durable goods industries and a 3.4-percent increase in the nondurable goods sector. Real hourly compensation in the total manufacturing sector fell 0.9 percent in the second quarter after increasing 11.0 percent one quarter earlier.

Unit labor costs in manufacturing increased 1.3 percent in the second quarter of 2006. The first-quarter 2006 increase in this measure, 9.3 percent, was the largest since the third quarter of 2000, when it increased 12.0 percent. Unit labor costs grew 0.5 percent in durable goods and 1.1 percent in nondurable goods in the second quarter of 2006.

Nonfinancial corporations

Preliminary second-quarter 2006 measures of productivity and costs were reported today for nonfinancial corporations (tables B and 6). Productivity increased 2.2 percent during the second quarter, reflecting a 3.8-percent rise in output and 1.6 percent growth in employee hours (seasonally adjusted annual rates). In the first quarter of 2006, output per hour rose 11.1 percent, output increased 13.0 percent, and employee hours rose 1.7 percent (as revised). The first-quarter productivity gain was the largest since the first quarter of 1971, when output per hour also increased 11.1 percent. 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 6.5 percent in the second quarter of 2006, following a 12.4 percent gain in the first quarter (as revised). When the rise in consumer prices is taken into account, real hourly compensation rose 1.4 percent in the second quarter after increasing 10.1 percent one quarter earlier.

Unit labor costs for nonfinancial corporations increased 4.2 percent in the second quarter of 2006. Hourly compensation grew almost twice as fast in the first quarter of 2006 as in the second quarter, 12.4 percent. This increase was largely offset by the 11.1-percent productivity gain and unit labor costs rose only 1.2 percent in the first quarter.

Unit profits declined 1.2 percent in second quarter 2006, following a 37.9 percent increase in the first quarter. The implicit price deflator for nonfinancial corporate output rose 2.8 percent in the second quarter of 2006.

Revised Measures

Current and previous measures for the first and second quarters of 2006 for the business, nonfarm business, and manufacturing sectors are compared in table C. The quarterly movements differ from those reported on Aug. 8 based on information then available. In the business and nonfarm business sectors, productivity was revised up in the second quarter, as output was revised up by more than hours worked. In both of these sectors upward revisions to hourly compensation were larger than those to productivity in the second quarter, so unit labor costs were also revised upwards. In the manufacturing sector, a downward revision to productivity in the second quarter resulted from a downward revision to output combined with a small upward revision to hours. Manufacturing hourly compensation was revised upwards for the second quarter, contributing to an increase in unit labor costs rather than the previously reported decline.

Second quarter 2006

Hourly compensation growth in the first quarter also was revised to reflect new estimates of compensation. In all of the major sectors, hourly compensation grew much faster in the first quarter than reported Aug. 8. As a result, unit labor costs in these sectors increased more than in preliminary estimates.

Revised Measures: Nonfinancial Corporations

Data for the first quarter of 2006 were revised for the nonfinancial corporate sector. Productivity was revised up substantially along with output as hours were not revised. Hourly compensation was revised up even more than productivity, causing unit labor costs to increase 1.2 percent rather than decline 0.8 percent, as reported on August 8. The first quarter 2006 increase in hourly compensation was the largest since the first quarter of 2000, when this measure increased 15.6 percent.

First quarter 2006