2007 Second 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.

Second Quarter 2007, 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 second quarter of 2007. The preliminary seasonally adjusted annual rates of productivity change in the second quarter were:

2.6 percent in the business sector and 1.8 percent in the nonfarm business sector.

These rates of growth are higher than those for the first quarter of 2007, when productivity increased 0.2 percent in the business sector and 0.7 percent in the nonfarm business sector.

In manufacturing, the preliminary productivity changes in the second quarter were:

1.6 percent in manufacturing, 4.7 percent in durable goods manufacturing, and -1.9 percent in nondurable goods manufacturing.

Productivity in the total manufacturing sector grew 1.6 percent in the second quarter of 2007, as output increased 3.5 percent and hours increased 1.8 percent (seasonally adjusted annual rates). Growth in output and productivity was concentrated in the durable goods subsector. 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. Second-quarter measures are summarized in table A and appear in detail in tables 1 through 5.

Data in this release reflect the regular multi-year revisions to the national income and product accounts released by the Bureau of Economic Analysis of the U.S. Department of Commerce on July 27. The data also incorporate revised estimates of output in manufacturing and hours in all sectors. See Revised Measures.

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 first quarter to the second quarter of 2007, business sector labor productivity increased at a 2.6-percent annual rate. Output increased 3.8 percent and hours of all persons engaged in the sector--employees, proprietors, and unpaid family workers--rose 1.1 percent (seasonally adjusted annual rates). As revised, output per hour rose at the same 0.2 percent annual rate as output in the first quarter of 2007, hours worked were unchanged from the previous quarter (tables 1 and B).

Hourly compensation increased 5.3 percent in the second quarter of 2007, more than the 3.3 percent gain in the first quarter (seasonally adjusted annual rates). 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, fell 0.7 percent during the second quarter of 2007 as consumer prices increased 6.0 percent (seasonally adjusted annual rates).

Unit labor costs, which reflect changes in both hourly compensation and productivity, increased 2.6 percent during the second quarter of 2007 after rising 3.1 percent in the previous quarter. From the second quarter of 2006 to the second quarter of 2007, these costs increased 4.7 percent--the largest four-quarter increase since unit labor costs increased 4.8 percent between the third quarter of 1999 and the third quarter of 2000. The implicit price deflator for the business sector, which reflects changes in both unit labor costs and unit nonlabor payments, increased 2.5 percent in the second quarter and 4.1 percent in the first quarter.

Nonfarm Business

Productivity increased 1.8 percent in the nonfarm business sector during the second quarter of 2007 as output grew 4.2 percent and hours of all persons increased 2.3 percent (seasonally adjusted annual rates). Revised results for first-quarter 2007 show that productivity increased 0.7 percent, output rose 0.3 percent, and hours declined 0.3 percent (tables 2 and B). Nonfarm business output per hour had increased at an average annual rate of 2.7 percent from 2000 through 2006.

Hourly compensation in the nonfarm business sector increased 3.9 percent in the second quarter of 2007, similar to a 3.7-percent rise one quarter earlier. When the 6.0-percent rise in consumer prices is taken into account, real hourly compensation fell 2.0 percent in the second quarter of 2007. It had fallen 0.2 percent in the first quarter.

Unit labor costs increased 2.1 percent in the second quarter of 2007 and 3.0 percent in the first quarter. As in the total business sector, unit labor costs increased more from the second quarter of 2006 to the second quarter of 2007, 4.5 percent, than during any four-quarter period since third-quarter 1999 to third-quarter 2000, when they increased 5.0 percent. The implicit price deflator for nonfarm business output grew 2.4 percent in the second quarter, following a 3.6-percent increase in the previous quarter.

Manufacturing

Productivity increased 1.6 percent in manufacturing, as output grew 3.5 percent and hours of all persons increased 1.8 percent (seasonally adjusted annual rates). All of the second-quarter productivity improvement occurred in durable goods industries, where productivity rose 4.7 percent, output grew 6.2 percent, and hours of all persons increased 1.5 percent. In nondurable goods industries, second-quarter productivity fell 1.9 percent reflecting increases in output of 0.3 percent and in hours of 2.3 percent. In the first quarter of 2007, total manufacturing productivity rose 1.7 percent, reflecting a 0.9-percent increase in output and a 0.8-percent decline in hours (tables 3, 4, and 5).

Hourly compensation of all manufacturing workers grew 2.8 percent during the second quarter of 2007, reflecting very different growth in the manufacturing subsectors. In durable goods industries, hourly compensation rose 1.5 percent, while in non-durable goods industries compensation per hour grew faster, 5.4 percent. When the increase in consumer prices is taken into account, the real hourly compensation of all manufacturing workers fell 3.0 percent in the second quarter after increasing 2.8 percent one quarter earlier.

Unit labor costs in manufacturing rose 1.2 percent in the second quarter of 2007, showing the combined effect of a 3.0 percent decline in durable goods industries and a 7.5 percent increase in nondurable goods industries.

Revised Measures

Revised and previous measures for the first quarter of 2007 for the business, nonfarm business, and manufacturing sectors are compared in table B. In all sectors, productivity growth was revised down, reflecting both smaller increases in output and smaller declines in hours than previously reported. In business and nonfarm business, upward revisions to hourly compensation combined with the smaller productivity gains to produce upward revisions to unit labor costs. In manufacturing, hourly compensation increased slightly less than reported June 6, so the upward revision to unit labor costs was due solely to the downward revision in productivity growth.

Output and productivity growth in the business and nonfarm business sectors were revised downward in each year from 2004 to 2006. The 1.0- percent productivity gains in 2006 are small compared to recent years. Productivity had increased at average annual rates of 3.1 percent in business and 3.0 percent in nonfarm business from 2000 through 2005. Hourly compensation was revised down more than productivity in these sectors for the year 2006, resulting in smaller increases in unit labor costs than reported in the June 6 release.

Output data for the manufacturing sector also were revised. Annual output indexes are constructed by BLS using data from the Bureau of the Census and the Bureau of Economic Analysis (BEA), both in the U.S. Department of Commerce, together with information on price changes, primarily from the Bureau of Labor Statistics.

This release also reports revised data on hours at work and related measures for the manufacturing, durable manufacturing, and nondurable manufacturing sectors. The hours revision reflects extension of the methodology, already used in the business sectors, which utilizes information on employment and hours by primary and secondary job of self-employed and unpaid family workers from the BLS Current Population Survey. (See Construction of Employment and Hours for Self-employed and other Nonfarm workers and for all Farm workers, using Current Population Survey data for primary and secondary jobs," on the productivity and costs home page, http://www.bls.gov/lpc/home.htm .)

Manufacturing productivity grew 4.8 percent in 2005 and 4.0 percent in 2006, the same as reported June 6. Hourly compensation and unit labor costs were revised down in both years. For 2004, productivity was revised up to 2.1 percent, as an upward revision to output was partially offset by an upward revision to hours. Because hourly compensation was not revised for 2004, the larger increase in productivity implied a downward revision to unit labor costs. The average annual rate of productivity growth in manufacturing for the 2000 to 2006 period was unchanged at 4.2 percent per year.

Revised quarterly series appear in tables 1-5 and appendix tables 1-5. Complete annual series for the manufacturing sectors appear in appendix tables 7 through 9. Links to tables showing the full historical revisions including the quarterly measures will be posted on the productivity and costs home page, http://www.bls.gov/lpc/home.htm .

Revised Measures: Nonfinancial Corporations

Productivity and costs measures for the first quarter of 2007 for nonfinancial corporations also were revised (table D). Increases in productivity and output were revised down to 0.2 percent and 0.4 percent, respectively (seasonally adjusted annual rates). Hourly compensation was revised down by more than productivity, and unit labor costs increased 3.6 percent, rather than 4.1 percent as reported June 6. The change in unit profits in the first quarter of 2007 was revised up from 6.8 percent to 12.4 percent.

First quarter 2007

Annual average 2006

Annual average 2005

Annual average 2004

Historical data for nonfinancial corporations also were revised due to incorporation of revised data on output and compensation from the national income and product accounts.

For the year 2006, output and output per hour were revised down, hourly compensation was revised down by a similar amount, and unit labor costs remained unchanged. In 2005, the downward revision to productivity was larger than that to hourly compensation, and unit labor costs increased more than reported June 6. The rates of productivity growth in 2005 and 2006, 1.1 percent and 1.3 percent, respectively, are smaller than the 3.3-percent average annual growth rate from 2000 to 2004. In the year 2004, productivity growth was revised up along with output. Unit labor costs fell 0.5 percent rather than rising 0.1 percent. Revised data for nonfinancial corporations appear in table 6 and appendix table 6.