2007 First 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.

First Quarter 2007, 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 first quarter of 2007. The revised seasonally adjusted annual rates of productivity change in the first quarter were:

0.5 percent in the business sector and 1.0 percent in the nonfarm business sector.

In both sectors, the first-quarter productivity gains were smaller than the preliminary estimates reported on May 3, due to downward revisions to output growth.

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

2.4 percent in manufacturing, 2.2 percent in durable goods manufacturing, and 1.8 percent in nondurable goods manufacturing.

Manufacturing productivity growth was slower in the first quarter of 2007 than reported on May 3, reflecting downward revisions to output per hour in both durable goods and nondurable goods industries. 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. First-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 prepared by the Board of Governors of the Federal Reserve System. See Technical Notes for further information on data sources.

Business

Productivity rose 0.5 percent in the business sector from the fourth quarter of 2006 to the first quarter of 2007, as output increased 0.4 percent and hours worked by all persons declined 0.1 percent (seasonally adjusted annual rates). In the fourth quarter of 2006, output per hour increased 1.5 percent, reflecting increases in output and hours of 2.9 percent and 1.4 percent, respectively (table 1). From first-quarter 2006 to first-quarter 2007, business sector productivity posted the smallest four-quarter gain since the fourth quarter of 1995, when it also rose 0.7 percent.

Hourly compensation increased at a 2.5 percent annual rate in the first quarter of 2007. For the fourth quarter of 2006, hourly compensation growth was revised up to 10.4 percent from the 7.7-percent increase reported May 3. This measure of 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, declined 1.4 percent in the first quarter of 2007 following a 12.8-percent gain in the previous quarter.

The change in unit labor costs approximates the change in hourly compensation less the change in productivity, and in the first quarter of 2007 there was a 1.9-percent rise in these costs. Unit labor costs grew 8.8 percent per year in the fourth quarter of 2006, as revised. The implicit price deflator for business output, which reflects changes in both unit labor costs and unit nonlabor payments, grew by 3.7 percent in the first quarter of 2007.

Nonfarm business

Productivity increased 1.0 percent in the nonfarm business sector during the first quarter of 2007, as output rose 0.6 percent and hours of all persons fell 0.4 percent (seasonally-adjusted annual rates). The decline in nonfarm business hours worked was the first since 2003, when hours fell 2.1 percent in the first quarter and 1.3 percent in the second quarter. In fourth-quarter 2006, nonfarm productivity had increased 2.1 percent as output increased 2.9 percent and hours rose 0.8 percent (table 2). The 1.0-percent increase in output per hour since the first quarter of 2006 is small compared to recent movements. Nonfarm business productivity had increased at an average annual rate of 3.1 percent from 2000 through 2005.

Hourly compensation increased 2.8 percent in the nonfarm business sector in the first quarter of 2007. This measure had increased 11.2 percent in the fourth quarter of 2006, as revised. When the rise in consumer prices is taken into account, real hourly compensation grew 13.6 percent in the fourth quarter of 2006, then declined 1.0 percent in the first quarter of 2007.

Unit labor costs rose 1.8 percent during the first quarter of 2007, following an 8.9-percent increase in the fourth quarter of 2006, as revised. The implicit price deflator for nonfarm business output rose by 3.2 percent in the first quarter of 2007.

Manufacturing

Productivity grew at a 2.4-percent annual rate in the manufacturing sector during the first quarter of 2007, the joint effect of a 1.2-percent increase in output and a 1.1-percent decrease in hours. The 2.2-percent productivity gain in durable goods industries in the first quarter was due entirely to a 2.5-percent drop in hours worked, as output also declined, by 0.4 percent. Output per hour rose 1.8 percent in nondurable goods industries as output and hours both increased, by 3.1 percent and 1.3 percent, respectively (tables 3, 4, and 5).

Hourly compensation in manufacturing grew 6.9 percent during the first quarter of 2007, following a gain of 11.8 percent one quarter earlier, as revised. Hourly compensation rose 8.5 percent in durable goods industries and 4.3 percent in nondurable goods industries. Real hourly compensation, which takes into account changes in consumer prices, increased 3.0 percent for all manufacturing workers, as a 4.5-percent rise in durable manufacturing real hourly compensation combined with a 0.4-percent rise in the nondurable goods industries.

Unit labor costs rose 4.5 percent in manufacturing during the first quarter of 2007. In durable goods industries, where hourly compensation increased much faster than productivity, unit labor costs increased 6.2 percent. In nondurable goods industries, unit labor costs rose 2.4 percent during the first quarter of 2007, but when the first quarter of 2007 is compared to the first quarter of 2006 nondurable manufacturing unit labor costs declined 0.7 percent.

Nonfinancial corporations

Preliminary first-quarter 2007 measures of productivity and costs for nonfinancial corporations also were announced today (tables B and 6). Productivity rose 0.6 percent in the first quarter, as output increased 0.7 percent and employee-hours edged up 0.1 percent (seasonally adjusted annual rates). The 0.3-percent increase in output per hour from the first quarter of 2006 to the first quarter of 2007 was the smallest gain since a similar increase from the fourth quarter of 1992 to the fourth quarter of 1993. 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 rose 4.7 percent during the first quarter of 2007, following an 8.7- percent increase in the fourth quarter of 2006. Taking the 3.9-percent rise in consumer prices into account, real hourly compensation increased 0.8 percent in the first quarter of 2007, in contrast to fourth- quarter 2006 when real hourly compensation jumped 11.0 percent. Unit labor costs in nonfinancial corporations rose 4.1 percent in the first quarter of 2007.

REVISED MEASURES

Previous and revised measures for the first quarter of 2007 in the business, nonfarm business, and manufacturing sectors are compared in table C. Productivity growth was revised down in all sectors due to downward revisions to output growth. Increases in hourly compensation and unit labor costs were revised up in all sectors for the first quarter of 2007 when compared to preliminary estimates reported May 3.

First quarter 2007

Fourth quarter 2006

Annual average 2006

In the fourth quarter of 2006, increases in hourly compensation, real hourly compensation, and unit labor costs were revised up in all sectors. Annual averages of these measures for 2006 were also revised up, and unit labor costs in manufacturing now show a small increase rather than a small decline for the year.

REVISED MEASURES: NONFINANCIAL CORPORATIONS

Fourth quarter and annual average 2006 measures were revised for the nonfinancial corporate sector. Productivity increased at a 1.3-percent annual rate in the fourth quarter of 2006, reflecting growth in output and employee-hours of 2.4 percent and 1.1 percent, respectively. An upward revision to hourly compensation outpaced the revision to productivity, and as a result unit labor costs rose slightly faster than reported May 3. For the year 2006, growth in productivity, output, and hours were unchanged.

Fourth quarter 2006

Annual average 2006