2006 Third 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.

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

0.4 percent in the business sector and 0.2 percent in the nonfarm business sector.

In both sectors, changes in productivity are higher than the preliminary estimates published November 2, as output was revised up more than hours (See table C).

In manufacturing, revised productivity increases in the third quarter were: 6.7 percent in manufacturing, 9.0 percent in durable goods manufacturing, and 3.1 percent in nondurable goods manufacturing.

Productivity growth in the manufacturing sector was revised up, reflecting an upward revision to output and no change to the previously- reported decrease in hours (table C). 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

Business sector productivity grew at an annual rate of 0.4 percent during the third quarter of 2006, as output increased 2.2 percent and hours of all persons engaged in the sector rose 1.8 percent (tables A and 1). When the third quarter of 2006 is compared to the third quarter of 2005, labor productivity rose 1.5 percent. This is the smallest four-quarter increase since a similar rise in the second quarter of 1997. In the second quarter of 2006, output per hour increased 1.1 percent.

Hourly compensation in the business sector increased 2.9 percent during the third quarter of 2006, following a decline of 1.4 percent in the second quarter (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, edged down 0.1 percent in the third quarter and fell 6.1 percent in the second quarter.

Unit labor costs rose 2.5 percent in the third quarter of 2006, after having fallen 2.5 percent in the previous quarter. The implicit price deflator for the business sector, which reflects changes both in unit labor costs and in unit nonlabor payments, rose 1.1 percent in the third quarter of 2006.

Nonfarm business

Output per hour of all persons in the nonfarm business sector rose 0.2 percent during the third quarter of 2006, reflecting increases in output and hours of 2.3 percent and 2.1 percent, respectively (tables A and 2). The 1.4-percent increase from the third quarter of 2005 to the third quarter of 2006 was the smallest four-quarter gain in nonfarm business productivity since the second quarter of 1997 (1.3 percent). In the second quarter of 2006, productivity in nonfarm businesses had increased 1.2 percent as output grew 2.7 percent and hours increased 1.5 percent.

Hourly compensation grew 2.6 percent in the third quarter of 2006, following the 1.2 percent decline in the second quarter (as revised). When the rise in consumer prices is taken into account, real hourly compensation declined 0.4 percent in the third quarter of 2006 and fell 5.9 percent one quarter earlier.

Unit labor costs rose 2.3 percent in the third quarter, in contrast to the previous quarter, when they dropped 2.4 percent. The implicit price deflator for nonfarm business was revised to 0.7 percent in the third quarter of 2006.

Manufacturing

Productivity increased 6.7 percent in manufacturing in the third quarter of 2006, as output increased 5.1 percent and hours of all persons decreased 1.6 percent (seasonally adjusted annual rates). This was the largest quarterly productivity gain since the third quarter of 2003, when manufacturing output per hour grew 8.6 percent. In durable goods industries, productivity increased 9.0 percent in the third quarter of 2006, as an increase of 5.9 percent in output combined with a decrease of 2.9 percent in hours. Productivity grew more slowly in the nondurable goods industries, 3.1 percent, reflecting increases of 3.9 percent in output and 0.8 percent in hours (tables 3, 4, and 5).

The average hourly compensation of all manufacturing workers rose 2.4 percent in the third quarter of 2006. Hourly compensation was revised down substantially in the second quarter, from the 4.0-percent increase reported previously to a 5.8-percent decrease. In durable goods industries, hourly compensation increased 4.1 percent in the third quarter, compared with a 0.5 percent decline in nondurable goods manufacturing. When the increase in consumer prices is taken into account, real hourly compensation for all manufacturing workers declined 0.5 percent in the third quarter of 2006.

Unit labor costs in manufacturing fell 4.1 percent in the third quarter of 2006 and 8.3 percent in the previous quarter, as revised. Unit labor costs declined 4.5 percent in durable goods industries and 3.5 percent in nondurable goods manufacturing during the third quarter.

Nonfinancial Corporations

Third-quarter 2006 measures of productivity and costs also were released for nonfinancial corporations (tables B and 6). Output per all-employee hour grew at a 5.6 percent annual rate; a reversal from the 4.3-percent decline reported in the previous quarter (as revised). Output increased 7.3 percent in the third quarter, and hours of all employees rose 1.6 percent (seasonally adjusted annual rates). 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 nonfinancial corporations increased 2.8 percent in the third quarter following a second-quarter decline of 0.7 percent, as revised. When the rise in consumer prices is taken into account, real hourly compensation fell 0.1 percent in the third quarter and 5.4 percent in the second quarter.

Unit labor costs for the sector declined 2.7 percent in third-quarter 2006 after increasing 3.7 percent one quarter earlier. Unit nonlabor costs also fell in the third quarter, by 5.3 percent. Unit profits increased at a 27.6 percent annual rate in the third quarter. As a result of these movements, the implicit price deflator for the output of nonfinancial corporations--which reflects a weighted average of these three measures-- edged up 0.2 percent.

Revised Measures

Current and previous measures for the second and third quarters of 2006 for the business, nonfarm business, and manufacturing sectors are compared in table C. In the third quarter, productivity in the business and nonfarm business sectors was revised up slightly as output was revised up by more than hours. In manufacturing, productivity was also revised up, by 0.8 percentage point, reflecting a similar upward revision in output, as hours declined at the same 1.6-percent rate reported Nov. 2. Increases in hourly compensation were revised down in all three sectors, and the combination of faster productivity growth and slower hourly compensation growth lead to significant downward revisions to unit labor costs.

The second-quarter 2006 measures of hourly compensation, real hourly compensation, and unit labor costs were revised to reflect new information on employee compensation reported by the Bureau of Economic Analysis of the U.S. Department of Commerce on Nov. 29. In both the business and nonfarm business sectors, hourly compensation growth was revised down by 7.8 percent, and moderate declines have replaced sizable increases. Because productivity was not revised, the hourly compensation revisions caused corresponding downward revisions to unit labor costs, which now decline rather than increase in the second quarter.

In the manufacturing sector there was an even larger downward revision to hourly compensation growth, from positive 4.0 percent to negative 5.8 percent. As a result, manufacturing unit labor costs, which had been reported as rising at a 1.2 percent annual rate, actually fell 8.3 percent in the second quarter.

Revised measures: Nonfinancial corporations

Measures for the nonfinancial corporate sector also were revised to reflect updated information on output and employee compensation during the second quarter of 2006 (table D). Productivity was revised down along with output, as hours grew at the same rate reported Nov 2. Hourly compensation was revised down from a 6.5-percent gain to 0.7-percent decline in the second quarter. Because hourly compensation was revised down more than productivity, the increase in unit labor costs also was revised down, from 6.4 percent to 3.7 percent.