2006 Fourth 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.

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 fourth quarter and for the full year 2006. The seasonally adjusted annual rates of productivity change in the fourth quarter and the annual average changes were:

Business sector 2.4 2.2 Nonfarm business sector 3.0 2.1

In the fourth quarter, productivity increased 2.4 percent in the business sector and 3.0 percent in the nonfarm business sector. In both sectors, the fourth-quarter productivity increases reflected faster growth in output than in hours worked. When the annual averages for 2006 were compared with annual averages for 2005, productivity rose 2.2 percent in the business sector and 2.1 percent in nonfarm businesses--slightly less than the 2.3- percent gains in both sectors from 2004 to 2005.

In the manufacturing sector, increases in productivity were:

Manufacturing sector 2.2 3.9 Durable goods manufacturing 3.3 6.2 Nondurable goods manufacturing 0.9 1.5

Manufacturing productivity grew at a 2.2-percent annual rate in the fourth quarter, as output fell, but hours fell faster. On an annual average basis, output per hour in the manufacturing sector posted a 3.9-percent increase in 2006. Output and hours in manufacturing, which includes about 12 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. Fourth-quarter productivity and related measures are summarized in table A, and annual average data in table B. Detailed information is presented 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.

THIRD-TO-FOURTH QUARTER CHANGES, 2006

Business

Productivity in the business sector increased by 2.4 percent in the fourth quarter of 2006, reflecting increases of 4.1 percent in output and 1.7 percent in hours of all persons (seasonally adjusted annual rates). Output per hour had edged up 0.1 percent in the third quarter of 2006, as output rose 1.9 percent and hours increased 1.8 percent.

Hourly compensation grew 4.2 percent in the fourth quarter of 2006, up from a 3.4-percent increase one quarter earlier. 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, increased 6.6 percent in the fourth quarter of 2006. A 2.2- percent decline in consumer prices in the fourth quarter of 2006 contributed to the large increase in real hourly compensation, and was the first decline in the price measure since the fourth quarter of 2001 (0.4 percent).

Unit labor costs, which relate hourly compensation to output per hour, increased 1.7 percent in the fourth quarter and 3.3 percent in the third quarter, after falling 2.5 percent in the second quarter of 2006.

Nonfarm business

In the nonfarm business sector, productivity rose 3.0 percent in the fourth quarter of 2006, as output grew 4.2 percent and hours of all persons-- employees, proprietors, and unpaid family workers--rose 1.2 percent (seasonally adjusted annual rates). Productivity declined 0.1 percent in the third quarter of 2006, as output and hours grew 1.9 percent and 2.0 percent, respectively (table 2).

Hourly compensation in the nonfarm business sector rose 4.8 percent in the fourth quarter of 2006, following a 3.1-percent increase in the third quarter. When the 2.2-percent decrease in consumer prices was taken into account, real hourly compensation grew 7.1 percent during the fourth quarter of 2006.

Unit labor costs rose 1.7 percent in the fourth quarter of 2006, after increasing 3.2 percent in the third quarter and decreasing 2.4 percent in the second quarter. The implicit price deflator for nonfarm business output rose 0.4 percent in the fourth quarter, after rising 0.8 percent one quarter earlier.

Manufacturing

Manufacturing productivity grew 2.2 percent in the fourth quarter of 2006 as output declined 1.6 percent and hours fell 3.7 percent (seasonally adjusted annual rates). The decrease in output was the first since the second quarter of 2003, when output decreased 2.4 percent. In the third quarter, manufacturing productivity had increased 6.3 percent, reflecting a 4.8-percent rise in output and a 1.5-percent decline in hours (table 3). In durable goods manufacturing, productivity rose 3.3 percent in the fourth quarter as output edged down 0.5 percent and hours fell 3.7 percent (table 4). Among nondurable goods manufacturers, productivity rose 0.9 percent in the fourth quarter as output fell 3.0 percent and hours at work fell 3.9 percent (table 5).

Average hourly compensation of manufacturing workers increased 7.3 percent in the fourth quarter of 2006, reflecting increases in hourly compensation of 7.9 percent in durable goods manufacturing and 6.1 percent in nondurable goods manufacturing. When the decrease in consumer prices was taken into account, real hourly compensation in total manufacturing jumped 9.8 percent in the fourth quarter.

Unit labor costs for the manufacturing sector increased 5.0 percent in fourth-quarter 2006, following declines of 2.9 percent in the third quarter and 8.8 percent in the second quarter. Unit labor costs rose 4.5 percent in durable goods manufacturing and 5.1 percent in nondurable goods industries in the fourth quarter.

ANNUAL AVERAGE CHANGES, 2005-2006

Business and Nonfarm business

When annual averages for 2006 were compared with annual averages for 2005, labor productivity increased 2.2 percent in the business sector and 2.1 percent in the nonfarm business sector (table B). These were the smallest annual increases in both sectors since 1997, when output per hour rose 1.9 percent and 1.6 percent in the business and nonfarm business sectors, respectively. Productivity grew at a 2.3–percent rate from 2004 to 2005 in both sectors. Output per hour had grown at an above-average rate from 2000 to 2004--3.4 percent in the business sector and 3.3 percent in the nonfarm business sector. Between 1990 and 2000, productivity rose 2.1 percent per year in the business sector and 2.0 percent per year in nonfarm business.

Business:

Nonfarm Business:

Manufacturing:

In 2006, hourly compensation increased 5.4 percent in the business sector and 5.3 percent in the nonfarm business sector, following 4.4-percent gains in both sectors during 2005. And in both sectors real hourly compensation increased 2.1 percent in 2006 and 1.0 percent in 2005.

Unit labor costs increased 3.1 percent in the business sector and 3.2 percent in the nonfarm business sector in 2006--more than in any year since 2000, when unit labor costs increased 4.1 percent and 4.2 percent in the business and nonfarm business sectors, respectively.

Manufacturing

In manufacturing, labor productivity rose 3.9 percent in 2006, slightly less than the 4.2-percent average annual rate from 2000 through 2005. Output increased 5.0 percent and hours rose 1.1 percent in 2006 (table B). There was a 6.2-percent increase in durable goods manufacturing productivity in 2006, as output increased 7.6 percent and hours increased 1.3 percent. Output per hour increased 1.5 percent in nondurable goods manufacturing, as output grew 2.2 percent and hours rose 0.7 percent.

The hourly compensation of manufacturing workers increased 4.1 percent in 2006, slightly less than the 4.6-percent growth rate in 2005. In 2006, hourly compensation rose 5.0 percent in durable goods manufacturing and 2.5 percent in nondurable goods manufacturing. Taking into account the rise in consumer prices, real hourly compensation in manufacturing rose 0.9 percent in 2006 after increasing 1.2 percent one year earlier.

Unit labor costs in manufacturing edged up 0.2 percent in 2006, after decreasing 0.1 percent in calendar year 2005. Unit labor costs in durable goods manufacturing decreased 1.2 pecent in 2006, similar to the 1.1-percent decline in 2005. Unit labor costs in nondurable goods manufacturing rose 1.0 percent in 2006 and 0.9 percent in 2005.

Revised Measures

Current and previous measures for the third quarter of 2006 for the business, nonfarm business, and manufacturing sectors are compared in table C. In the business and nonfarm business sectors, productivity and output growth in the third quarter were lower than reported on Dec. 5. Business sector productivity was revised down, reflecting a downward revision to output. Productivity in nonfarm businesses was revised from a very small increase, 0.2 percent, to a very small decrease, 0.1 percent. Both output and hours in the sector were revised down but output was revised more than hours.

In both of these sectors, hourly compensation also grew more than reported in December. Unit labor costs rose more rapidly than previously reported, reflecting both the higher hourly compensation and the lower productivity growth.

In the manufacturing sector, productivity was revised down in the third quarter due primarily to a downward revision to output. An upward revision to hourly compensation, combined with the downward revision to productivity, led to a smaller drop in unit labor costs than previously reported.

Manufacturing sector productivity and costs measures reflect historical revisions to the source data. Annual indexes of real output for manufacturing and its durable and nondurable goods components were revised by BLS beginning with data for 1997 due to incorporation of information on intermediate inputs from the U.S. Department of Commerce ( described in the BLS news release, “Trends in Multifactor Productivity in Manufacturing, 2002, 2003, and 2004,” December 6, 2006 (http://www.bls.gov/news.release/prod5.nr0.htm ). Annual indexes also were revised from 1987 forward due to a change in the way intrasector transactions are estimated. These transactions are excluded from sectoral output for the manufacturing sector. Quarterly changes in manufacturing output and related measures now reflect revised Indexes of Industrial Production, published by the Board of Governors of the Federal Reserve System on December 11, 2006. Appendix tables 1-3 display quarterly and annual data for manufacturing, durable manufacturing, and nondurable manufacturing beginning in 2001. Quarterly historical data are available on the BLS website. Annual historical data for total manufacturing and its subsectors are presented in appendix tables 4-6.

Revised measures: Nonfinancial Corporations

Revised third-quarter productivity and costs measures for nonfinancial corporations also were announced today. In the third quarter of 2006, increases in productivity, output, and hours were about the same as reported on Dec. 5, 2006. Both productivity and hourly compensation were revised up. Because the revision to hourly compensation was larger than that to productivity, unit labor costs decreased less than previously reported (table D).

Third quarter 2006

The measure of real output for the nonfinancial corporate sector has been revised by the Bureau of Economic Analysis (BEA), U.S. Department of Commerce. As a result, several measures for this sector were revised back to the first quarter of 2003. Recent quarterly and annual data for nonfinancial corporations are shown in table 6. Appendix table 7 provides data for 2003. Complete historical series are available on the BLS website.