2006 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 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 third quarter of 2006. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were:

0.1 percent in the business sector and 0.0 percent in the nonfarm business sector.

Productivity increased 0.1 percent in the business sector, as both output and hours grew 1.4 percent (seasonally adjusted annual rates). Nonfarm business productivity remained unchanged as output and hours both increased 1.6 percent (table A).

In manufacturing, productivity increases in the third quarter were:

5.9 percent in manufacturing, 8.6 percent in durable goods manufacturing, and 2.0 percent in nondurable goods manufacturing.

The 5.9-percent increase in manufacturing productivity reflected increases of 8.6 percent in durable goods manufacturing and 2.0 percent in the nondurable goods 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. 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 2006 productivity in the business sector grew at a 0.1 percent seasonally adjusted annual rate. Both output and hours of all persons engaged in the sector increased at the same 1.4 percent annual rate. The third-quarter productivity increase was slower than the 1.1-percent gain recorded in the second quarter of 2006 (as revised), which reflected a 2.7-percent rise in output and a 1.7-percent increase in hours. (tables B and 1).

Hourly compensation in the business sector increased at an annual rate of 4.0 percent during the third quarter of 2006, slower than the 6.4-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, rose by 1.0 percent in the third quarter of 2006 and 1.3 percent in the second quarter.

Unit labor costs, which reflect changes in both hourly compensation and productivity, rose 4.0 percent during the third quarter of 2006. This measure had increased 5.3 percent in the second quarter. The implicit price deflator for business sector output increased 1.3 percent during the third quarter of 2006, following a 3.1 percent increase in the previous quarter.

Nonfarm business

Productivity in the nonfarm business sector remained unchanged during the third quarter of 2006. Output grew at a 1.6 percent annual rate. Hours of all persons in the nonfarm business sector also increased 1.6 percent, reflecting 0.8-percent gains in both employment and average weekly hours at work. In the second quarter, nonfarm business productivity increased 1.2 percent, as output grew 2.7 percent and hours worked rose by 1.5 percent (table 2).

Hourly compensation increased at a 3.7 percent annual rate in the third quarter of 2006. When the rise in consumer prices is taken into account, real hourly compensation rose 0.7 percent during the July-September period. During the second quarter of 2006, real hourly compensation had increased 1.6 percent.

Unit labor costs in the nonfarm business sector grew 3.8 percent during the third quarter of 2006, after rising 5.4 percent in the second quarter. The implicit price deflator for nonfarm business output rose 1.0 percent in the third quarter of 2006.

Manufacturing

Productivity increased 5.9 percent in manufacturing in the third quarter of 2006, as output grew 4.2 percent and hours of all persons fell 1.6 percent (seasonally adjusted annual rates). This was the largest quarterly gain in productivity since the third quarter of 2003, when output per hour increased 8.6 percent. In durable goods industries, productivity grew 8.6 percent in the third quarter as output grew 5.3 percent and hours of all persons fell 3.0 percent. Productivity increased 2.0 percent in nondurable goods, reflecting increases in output and hours of 3.0 percent and 0.9 percent, respectively (tables 3, 4, and 5).

The hourly compensation of manufacturing workers increased 2.9 percent during the third quarter of 2006, as a 4.8-percent gain in the durable goods subsector was partially offset by a 0.6 percent decline in nondurable goods industries. Hourly compensation in total manufacturing had increased 4.0 percent in the second quarter. When the increase in consumer prices is taken into account, real hourly compensation declined 0.1 percent in the third quarter.

Unit labor costs in manufacturing fell 2.9 percent in the third quarter of 2006, reflecting declines of 3.5 percent in durable goods industries and 2.5 percent in nondurable goods industries. These costs had increased 1.2 percent in the previous quarter.

Revised Measures

Revised and previous measures for the second quarter of 2006 for the business, nonfarm business, and manufacturing sectors are compared in table B. In both the business and nonfarm business sectors, productivity was revised down along with output, as hours increased at the same rate reported Sept. 6. Unit labor costs increased more in both sectors during the second quarter than previously reported.

In the manufacturing sector, productivity was revised up slightly due to a small downward revision to hours, as the increase in output was not revised. Hours worked during the second quarter in all sectors now reflect more current data on the ratio of hours worked to hours paid in private nonfarm businesses.

Revised measures: Nonfinancial Corporations

Productivity and cost measures for nonfinancial corporations for the second quarter of 2006 also were revised to incorporate more recent information than was available on Sept. 6.

Second quarter 2006

Productivity rose 0.2 percent in the second quarter of 2006, compared with the preliminary estimate of a 2.2 percent increase. This was the result of a downward revision in output growth, from 3.8 percent to 1.8 percent. Hours growth was unchanged. Unit labor costs increased faster than previously reported, as productivity was revised down and hourly compensation was not revised. Unit profits fell more than reported on Sept. 6. (tables C and 6).