2006 Fourth 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.

Fourth Quarter and Annual Averages, 2006 Revised

The Bureau of Labor Statistics of the U.S. Department of Labor today reported revised fourth-quarter seasonally-adjusted annual rates of productivity change--as measured by output per hour of all persons--and revised changes for calendar year 2006. Percent changes in business and nonfarm business productivity were:

Business sector 1.0 1.7 Nonfarm business sector 1.6 1.6

In both the business and nonfarm business sectors, productivity growth for the fourth quarter of 2006 was revised down by 1.4 percentage points from the estimates published February 7, due solely to downward revisions to output. Productivity growth during calendar year 2006 also was less than previously reported in both sectors, but the revisions to annual data were almost entirely explained by upward revisions to hours worked.

In the manufacturing sector, increases in productivity were:

Manufacturing 2.2 4.0 Durable goods manufacturing 3.4 6.2 Nondurable goods manufacturing 0.8 1.7

Data in this release reflect the annual benchmark revision of BLS Current Employment Statistics program data on nonfarm employee hours, and revised seasonal adjustment of those data. Also, hours of other nonfarm and farm workers based on the BLS Current Population Survey and contributing to measures for the business and nonfarm business sectors incorporate new seasonal adjustment factors. Due to these hours revisions, measures for all major sectors were subject to revision beginning with data for the first quarter of 2002. Revised seasonally-adjusted values of the BLS Consumer Price Index for all urban consumers are reflected in measures of real hourly compensation beginning with data for the first quarter of 2006. See Revised Measures.

Productivity in total manufacturing grew at a 2.2 percent annual rate in the fourth quarter of 2006, the same as the preliminary estimate. In total manufacturing and in both subsectors, the reported increases in productivity resulted when hours fell faster than output. When revised annual averages for 2005 and 2006 were compared, productivity increased slightly more in total manufacturing and in nondurable manufacturing than reported Feb. 7 and the increase in durable manufacturing was not revised. 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 appear in detail in tables 1 through 5. Preliminary and revised fourth-quarter and annual data appear 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 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

Labor productivity in the business sector increased 1.0 percent in the fourth quarter of 2006, as output increased 2.5 percent and hours of all persons engaged in the sector increased 1.5 percent (seasonally adjusted annual rates). Revised estimates show that output per hour declined 0.3 percent in the third quarter when output increased 1.9 percent but hours increased more, 2.2 percent (table 1).

Hourly compensation grew at a 7.5-percent annual rate in the fourth quarter after rising 0.9 percent in the third quarter of 2006, 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, increased more than hourly compensation in the fourth quarter, 9.8 percent, because consumer prices fell 2.1 percent.

Unit labor costs, which reflect changes in hourly compensation and productivity, increased 6.5 percent during the fourth quarter of 2006, after rising 1.2 percent in the third quarter. The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, increased 1.0 percent in the fourth quarter and 1.2 percent in the third quarter.

Nonfarm business

In the nonfarm business sector, productivity increased at an annual rate of 1.6 percent in the fourth quarter of 2006, as output increased 2.5 percent and hours of all persons--employees, proprietors, and unpaid family workers-- rose 0.9 percent. Nonfarm business productivity declined 0.5 percent in the third quarter of 2006, as output and hours grew 1.9 percent and 2.4 percent, respectively (table 2).

Hourly compensation grew 8.2 percent in the fourth quarter, and when the decrease in consumer prices was taken into account, real hourly compensation grew even faster, 10.5 percent. Real hourly compensation had fallen in the second and third quarters of 2006, following an 11.0-percent gain in the first quarter.

Unit labor costs increased at a 6.6-percent annual rate in the fourth quarter after rising 1.1 percent in the third quarter, as revised. The implicit price deflator for nonfarm business increased 0.5 percent in the fourth quarter, and 0.8 percent in the third quarter, of 2006.

Manufacturing

Manufacturing productivity increased 2.2 percent in the fourth quarter of 2006, as output decreased 2.1 percent and hours fell 4.2 percent (seasonally adjusted annual rates). The productivity increase was the smallest since the first quarter of 2004, when output per hour declined 1.7 percent. In durable goods industries, productivity increased 3.4 percent as both output and hours decreased, 0.9 percent and 4.2 percent, respectively. In nondurable goods industries, output per hour rose 0.8 percent, reflecting decreases of 3.5 percent in output and 4.2 percent in hours. In the third quarter of 2006, productivity increased 5.9 percent in total manufacturing, 8.1 percent in durable goods industries, and 2.7 percent in nondurable goods industries (tables 3, 4, and 5).

Manufacturing hourly compensation grew at a 7.1 percent annual rate during the fourth quarter of 2006. Durable and nondurable goods manufacturing posted increases in hourly compensation of 7.4 percent and 6.4 percent, respectively. Consumer prices decreased slightly in the fourth quarter of 2006, contributing to real hourly compensation gains of 9.3 percent in total manufacturing, 9.7 percent in durable manufacturing, and 8.7 percent in nondurables.

Unit labor costs in manufacturing increased 4.7 percent in the fourth quarter of 2006 after falling 5.8 percent in the third quarter. These costs increased 3.9 percent in durable goods industries and 5.6 percent in nondurable goods industries during the fourth quarter of 2006.

ANNUAL AVERAGE CHANGES, 2005-2006

Business and Nonfarm business

Business sector productivity increased 1.7 percent when the revised annual average for 2006 was compared with the revised annual average for 2005 (table B). This was the smallest annual productivity gain since 1995, when business sector output per hour edged up 0.1 percent. Productivity increased 2.1 percent from 2004 to 2005 (as revised), and at an average annual rate of 3.4 percent per year from 2000 to 2004. Nonfarm business productivity increased less during 2006 than in any year since 1997, when it grew at the same 1.6-percent rate. In both sectors, the modest productivity improvement reflected output growth of 3.8 percent combined with significant increases in hours worked: business sector hours increased 2.1 percent, the most since 1997 (3.4 percent), and the 2.2-percent increase in nonfarm business hours was the largest since a similar increase in 1999.

Percent change from previous year

Hourly compensation increased 4.8 percent and real hourly compensation increased 1.5 percent during 2006 in both the business and nonfarm business sectors. Unit labor costs increased 3.1 percent in the business sector and 3.2 percent in the nonfarm business sector in 2006, faster than in any year since 2000, when unit labor costs grew 4.1 percent and 4.2 percent in the business and nonfarm business sectors, respectively.

Manufacturing

Manufacturing productivity grew 4.0 percent in 2006, reflecting increases in output and hours of 5.0 percent and 1.0 percent, respectively. In 2005, output per hour had increased 4.8 percent, as output grew 3.6 percent and hours declined 1.1 percent. Labor productivity increased 6.2 percent in durable goods manufacturing during 2006, as output jumped 7.6 percent and hours rose 1.3 percent. Productivity in nondurable goods manufacturing rose 1.7 percent in 2006--the smallest annual increase in this sector since 1999 (1.0 percent)--as output increased 2.1 percent and hours edged up 0.4 percent (tables B, 3, 4, and 5).

Hourly compensation of manufacturing workers increased 3.8 percent in 2006, compared to a 4.7-percent increase one year earlier. Hourly compensation increased 4.3 percent in durable manufacturing and 2.8 percent in nondurable goods industries. Real hourly compensation in the manufacturing sector edged up 0.5 percent in 2006 and increased 1.3 percent in 2005.

From 2005 to 2006 unit labor costs fell 0.2 percent in manufacturing. During the same time period, unit labor costs fell 1.8 percent in durable manufacturing and increased 1.0 percent in nondurable manufacturing.

REVISED MEASURES

Productivity and cost data for the third quarter, fourth quarter, and full year 2006 for business, nonfarm business, and manufacturing were revised to incorporate the most recent information. Quarterly measures of real hourly compensation during 2006 also reflect the recalculation of seasonal factors for the Consumer Price Index for All Urban Consumers.

Quarterly and annual measures for all sectors were revised back to 2002 to incorporate the annual benchmark adjustment and updated information on seasonal trends from the BLS nonfarm payroll series (appendix tables 1-5). Hours and related measures for the business and nonfarm business sectors were revised to incorporate updated information on seasonal trends in Current Population Survey data on hours by job. Full quarterly and annual historical series are available on the BLS website, http://www.bls.gov/data/home.htm or by contacting the BLS Division of Major Sector Productivity at (202) 691- 5606.

In fourth-quarter 2006, productivity growth in the business and nonfarm business sectors was revised down to 1.0 percent and 1.6 percent, respectively, due to downward revisions to output, as hours increases also were revised down. These downward revisions to productivity combined with large upward revisions to hourly compensation to produce rates of growth in unit labor costs in excess of six percent in both sectors. In the manufacturing sector, fourth-quarter productivity growth was unchanged from the preliminary estimate, as both output and hours were revised down by 0.5 percentage point. A small downward revision in hourly compensation led to a revision in the change in unit labor costs from 5.0 percent to 4.7 percent.

Productivity growth was revised down in all major sectors for the third quarter, due solely to upward revisions to hours changes; output was not revised. Measures of output per hour for the business and nonfarm business sectors now show small absolute declines. Hourly compensation was revised down substantially in all sectors, resulting in significant downward revisions to changes in unit labor costs. In manufacturing, unit labor costs fell at a 5.8-percent annual rate in the third quarter, as revised.

After revisions to annual averages, productivity grew less in 2006 in the business and nonfarm business sectors than previously reported. Downward revisions to hourly compensation in the business and nonfarm business sectors offset those to productivity, and unit labor costs grew at the same rates reported Feb. 7. In manufacturing, the slight upward revision to productivity growth during 2006 reflected a corresponding downward revision to hours growth. The small upward revision to output per hour combined with a downward revision to hourly compensation to bring about a small decline in manufacturing unit labor costs during calendar year 2006, rather than the small increase reported previously.

Productivity growth in both the business and nonfarm business sectors was revised down from 2.3 percent to 2.1 percent for the year 2005, reflecting small upward revisions to hours. Downward revisions to hourly compensation prevented corresponding upward revisions to unit labor costs.

Revised measures: Nonfinancial corporations

Measures for the nonfinancial corporate sector also were revised due to updated information on hours worked by employees (table 6 and appendix table 6). New information on output and compensation in the third quarter of 2006 also impacted measures for this sector.

Productivity in nonfinancial corporations in third-quarter 2006 increased less than in the preliminary estimates, reflecting both a downward revision to output and an upward revision to hours worked. Hourly compensation was revised down by more than productivity, and unit labor costs decreased more than published Feb. 7. Unit profits posted a slightly larger increase than originally reported. For calendar year 2005, productivity was revised down as hours worked by employees were revised up. A downward revision to hourly compensation offset the productivity revision and unit labor costs increased at the same rate reported previously.

Third quarter 2006

Annual 2005