2007 Fourth Quarter (Revised) Productivity and Costs

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Fourth Quarter and Annual Averages, 2007 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 2007. Percent changes in business and nonfarm business productivity were:

Business sector 1.0 1.9 Nonfarm business sector 1.9 1.8

Productivity growth for the fourth quarter of 2007 was revised up by 0.4 percentage points in the business sector from the estimates published February 6, due primarily to a downward revision to hours. Nonfarm business productivity was revised up by 0.1 percentage points, with small downward revisions to both output and hours. Unit labor costs also were revised up, to 2.7 percent in the business sector and 2.6 percent in nonfarm businesses, reflecting upward revisions in hourly compensation that more than offset the productivity increases. Productivity growth during calendar year 2007 also was higher than previously reported in both sectors.

In the manufacturing sector, increases in productivity were:

Manufacturing 2.3 3.7 Durable goods manufacturing 4.2 4.9 Nondurable goods manufacturing -0.5 2.2

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 incorporate new seasonal adjustment factors. Due to these revisions, hours measures for all major sectors were revised back to the first quarter of 2003. A conversion of nonfarm employee hours series to NAICS 2007 classification further revised all major sector series back to 1990. Revised seasonally-adjusted values of the BLS Consumer Price Index for all urban consumers are reflected in measures of consumer prices and real hourly compensation beginning with data for the first quarter of 2007. See Revised Measures.

Productivity in total manufacturing grew at a 2.3 percent annual rate in the fourth quarter of 2007, slightly less than the preliminary estimate of 2.5 percent. The fourth-quarter increase in productivity resulted when hours fell faster than output. When revised annual averages for 2006 and 2007 were compared, productivity increased more in each of the manufacturing sectors than reported Feb. 6. 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, 2007

Business

Labor productivity in the business sector increased 1.0 percent in the fourth quarter of 2007, as output increased 0.2 percent and hours of all persons engaged in the sector decreased 0.7 percent (seasonally adjusted annual rates). When the fourth quarter of 2007 is compared to the fourth quarter of 2006 output per hour increased 3.0 percent (table 1).

Hourly compensation grew at a 3.6-percent annual rate in the fourth quarter after rising 3.7 percent in the third quarter of 2007, 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, decreased 1.3 percent in the fourth quarter because consumer prices rose 5.0 percent (seasonally adjusted annual rates).

Unit labor costs, which reflect changes in hourly compensation and productivity, increased 2.7 percent during the fourth quarter of 2007, after falling 2.8 percent in the third quarter. The implicit price deflator for business output, which reflects changes in unit labor costs and unit nonlabor payments, increased 2.3 percent in the fourth quarter and 0.3 percent in the third quarter.

Nonfarm business

In the nonfarm business sector, productivity increased at an annual rate of 1.9 percent in the fourth quarter of 2007, as output increased 0.3 percent and hours of all persons--employees, proprietors, and unpaid family workers-- decreased 1.6 percent. The decline in hours was the largest since the first quarter of 2003, when they fell 2.1 percent. From the fourth quarter of 2006 to the fourth quarter of 2007 productivity increased 2.9 percent (table 2).

Hourly compensation grew 4.6 percent in the fourth quarter. When the increase in consumer prices was taken into account, real hourly compensation decreased 0.5 percent. Real hourly compensation had grown 0.6 percent during the third quarter of 2007.

Unit labor costs increased at a 2.6 percent annual rate in the fourth quarter after falling 2.7 percent in the third quarter, as revised. The implicit price deflator for nonfarm business increased 2.0 percent in the fourth quarter and 0.1 percent in the third quarter of 2007.

Manufacturing

Manufacturing productivity increased 2.3 percent in the fourth quarter of 2007, as output decreased 1.7 percent and hours fell 3.9 percent (seasonally adjusted annual rates). In durable goods industries, productivity increased 4.2 percent as both output and hours decreased, 0.7 percent and 4.7 percent, respectively. The decline in durable goods hours was the largest since the third quarter of 2003, when hours fell 6.9 percent. In nondurable goods industries, output per hour fell 0.5 percent, reflecting decreases of 2.9 percent in output and 2.4 percent in hours. In the third quarter of 2007, productivity increased 4.1 percent in total manufacturing, 5.4 percent in durable goods industries, and 3.2 percent in nondurable goods industries, as revised (tables 3, 4, and 5).

Manufacturing hourly compensation grew at a 4.4 percent annual rate during the fourth quarter of 2007. Durable goods manufacturing and nondurable goods manufacturing posted increases in hourly compensation of 5.2 percent and 3.0 percent, respectively. When the 5.0 percent fourth-quarter increase in consumer prices was taken into account, real hourly compensation declined 0.6 percent in total manufacturing, edged up 0.1 percent in durable manufacturing, and fell 1.9 percent in nondurable manufacturing (seasonally adjusted annual rates).

Unit labor costs in manufacturing increased 2.1 percent in the fourth quarter of 2007 after falling 3.3 percent in the third quarter, as revised. These costs increased 0.9 percent in durable goods industries and 3.5 percent in nondurable goods industries during the fourth quarter of 2007.

ANNUAL AVERAGE CHANGES, 2006-2007

Business and Nonfarm business

Business sector productivity increased 1.9 percent when the revised annual average for 2007 was compared with the revised annual average for 2006--the same as the average rate of productivity growth over the past four years, from 2003 to 2007. Nonfarm business sector productivity grew 1.8 percent in 2007 (table B). In both sectors, the modest productivity improvement reflected output growth of 2.3 percent combined with small increases in hours worked: business sector hours increased 0.4 percent, and hours increased 0.5 percent in the nonfarm business sector.

Percent change from previous year

Hourly compensation increased 5.0 percent in the business sector and 4.9 percent in the nonfarm business sector. Real hourly compensation increased 2.3 percent during 2007 in both the business and nonfarm business sectors. Unit labor costs increased 3.1 percent in the business and nonfarm business sectors in 2007, faster than in any year since 2000, when unit labor costs grew 4.1 percent in the business sector and 4.2 percent in the nonfarm business sector.

Manufacturing

Manufacturing productivity grew 3.7 percent in 2007, reflecting an increase in output of 2.0 percent and a decrease in hours of 1.7 percent. In 2006, output per hour had increased 4.3 percent, as output grew 4.9 percent and hours rose 0.6 percent. Productivity also grew at a 4.3 percent average annual rate from 2000 to 2005. Labor productivity increased 4.9 percent in durable goods manufacturing during 2007, as output rose 2.9 percent and hours fell 1.9 percent. Productivity in nondurable goods manufacturing increased 2.2 percent in 2007, reflecting a 0.9 percent increase in output and a 1.2 percent drop in hours (tables B, 3, 4, and 5).

Hourly compensation of manufacturing workers increased 5.4 percent in 2007, compared to a 2.8 percent increase one year earlier. Hourly compensation increased 5.5 percent in durable manufacturing and 5.1 percent in nondurable goods industries. Real hourly compensation in the manufacturing sector increased 2.7 percent in 2007 after decreasing 0.5 percent in 2006.

From 2006 to 2007, unit labor costs rose 1.6 percent in manufacturing-- the largest increase in this measure since 2000, when unit labor costs increased 4.9 percent. During 2007, unit labor costs increased 0.6 percent in durable manufacturing and 2.9 percent in nondurable manufacturing.

REVISED MEASURES

Quarterly and annual measures for all sectors were revised back to 2003 to incorporate the annual benchmark adjustment and updated information on seasonal trends from the BLS nonfarm payroll series, and were also revised back to 1990 to convert all employee-hours series to NAICS 2007 classification (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 worked. Quarterly measures of consumer prices and real hourly compensation during 2007 also reflect the recalculation of seasonal factors for the Consumer Price Index for All Urban Consumers (CPI-U). 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.

Previous and revised productivity and related data for the third quarter, fourth quarter, and full year 2007 for business, nonfarm business, and manufacturing are displayed in Table C. In the fourth quarter of 2007, productivity growth was revised up from 0.6 percent to 1.0 percent in the business sector, and from 1.8 percent to 1.9 percent in the nonfarm business sector. In both sectors the upward revisions resulted from downward revisions to hours, with output little changed. The upward revisions to productivity were less than the upward revisions to hourly compensation, so unit labor costs were revised up in both sectors, by 0.5 percentage points. In the manufacturing sector, fourth-quarter productivity growth was revised down from 2.5 percent to 2.3 percent; both output and hours were revised up slightly. The combination of the downward revision to productivity and a small upward revision to hourly compensation led to an upward revision in unit labor costs from 1.7 percent to 2.1 percent.

Productivity growth was revised up in all major sectors for the third quarter, due solely to downward revisions to hours; output was not revised. Hourly compensation growth was revised down in all sectors, contributing to downward revisions in unit labor costs.

After revisions to annual averages, productivity grew more in 2007 in all major sectors than previously reported. These upward revisions to productivity were offset by upward revisions to hourly compensation, and as a result unit labor costs grew at the same rates reported Feb. 6.

Revised measures: Nonfinancial corporations

Measures for the nonfinancial corporate sector also were revised today to incorporate new information regarding output and compensation in the third quarter of 2007. Productivity in nonfinancial corporations in third-quarter 2007 was revised down from the preliminary estimate as output was revised down more than hours worked. Hourly compensation was revised down by more than productivity, and so unit labor costs edged down, rather than increasing as reported Feb. 6. Unit profits posted a slightly smaller decrease than originally reported.

Third quarter 2007