2008 First 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.

First Quarter 2008, 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 first quarter of 2008. The seasonally adjusted annual rates of productivity change in the first quarter were:

1.9 percent in the business sector and 2.2 percent in the nonfarm business sector.

In both sectors, the productivity gains were due primarily to declines in hours worked. In the business sector, output edged up 0.2 percent while hours fell 1.6 percent. In nonfarm businesses, output rose 0.4 percent and hours declined 1.8 percent (seasonally adjusted annual rates). In both sectors, productivity grew faster than in the fourth quarter of 2007, when output per hour rose 0.9 percent in the business sector and 1.8 percent in the nonfarm business sector. First quarter measures are summarized in table A and appear in detail in tables 1 through 5.

In manufacturing, productivity changes in the first quarter were:

4.1 percent in manufacturing, 2.3 percent in durable goods manufacturing, and 7.0 percent in nondurable goods manufacturing.

Manufacturing productivity growth in the first quarter reflected a 4.2 percent decline in hours worked in the sector and an output decline of 0.3 percent. After revisions, manufacturing productivity increased 4.2 percent in the fourth quarter of 2007. 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 independently prepared by the Board of Governors of the Federal Reserve System. See Technical Notes for further information on data sources.

Business

Productivity in the business sector rose 1.9 percent in the first quarter of 2008, as output grew 0.2 percent and hours of all persons at work in the sector--employees, proprietors, and unpaid family workers--fell 1.6 percent (seasonally adjusted annual rates). The decrease in hours was the largest since the second quarter of 2003, when they fell 2.1 percent. When the first quarter of 2008 is compared to the first quarter of 2007, productivity in the business sector grew 3.2 percent. This was the largest four quarter change since a 3.4 percent increase from the second quarter of 2003 to the second quarter of 2004 (see tables A and 1).

Hourly compensation increased 4.2 percent during the first quarter of 2008 following a 3.7 percent rise in the previous quarter. Hourly compensation includes wages and salary accruals, supplements, employer contributions to employee benefit plans, and taxes. Real hourly compensation, which takes into account changes in consumer prices, decreased 0.1 percent in the first quarter of 2008 after falling 1.3 percent in the fourth quarter of 2007.

Unit labor costs rose 2.2 percent in the first quarter of 2008, compared to a 2.8 percent increase in the fourth quarter. Growth in unit labor costs is roughly equivalent to the change in hourly compensation minus the change in output per hour. The implicit price deflator for the business sector, which reflects changes in both unit labor costs and unit nonlabor payments, grew at a 2.0 percent rate in the first quarter and 1.9 percent in the final quarter of 2007.

Nonfarm business

Productivity increased 2.2 percent in the nonfarm business sector in the first quarter of 2008 as output rose 0.4 percent and hours of all persons fell 1.8 percent (seasonally adjusted annual rates). The decrease in hours was the largest since the first quarter of 2003, when hours fell 2.3 percent, and followed a 1.6 percent decline in the previous quarter (see tables A and 2.)

Productivity in the nonfarm business sector grew 3.2 percent from the first quarter of 2007 to the first quarter of 2008, the largest four quarter change since a 3.8 percent increase between the second quarters of 2003 and 2004.

Hourly compensation grew at a 4.4 percent annual rate in the first quarter of 2008; similar to the fourth quarter rate of 4.6 percent. When the rise in consumer prices was taken into account, real hourly compensation rose 0.1 percent in the first quarter following a 0.4 percent decline in the fourth quarter of 2007.

Unit labor costs grew 2.2 percent in the first quarter of 2008 and 2.8 percent in the previous quarter. The implicit price deflator for nonfarm business output increased 2.2 percent in the first quarter of 2008 and 1.6 percent in the fourth quarter of 2007.

Manufacturing

Productivity increased 4.1 percent in manufacturing in the first quarter of 2008 as output decreased 0.3 percent and hours of all persons dropped 4.2 percent (seasonally adjusted annual rates). This 4.2 percent hours decrease reflected a 2.8 percent decline in durable goods hours and a 6.6 percent drop in hours worked in nondurable goods industries. Productivity rose 2.3 percent in durable manufacturing and 7.0 percent in nondurable manufacturing.

The hourly compensation of all manufacturing workers increased 6.7 percent during the first quarter of 2008 and real hourly compensation rose 2.3 percent (seasonally adjusted annual rates). Because hourly compensation of manufacturing workers rose more rapidly than productivity, unit labor costs increased in the first quarter, by 2.5 percent. Unit labor costs increased 4.1 percent in durable goods manufacturing and fell 0.4 percent in nondurable goods manufacturing.

Fourth quarter and annual measures for nonfinancial corporations

Fourth quarter and annual 2007 measures of productivity and costs also were announced today for the nonfinancial corporate sector (tables B, C, and 6). Output per all employee hour grew 0.9 percent from the third to the fourth quarter of 2007 as output rose 0.9 percent and employee hours were unchanged.

Hourly compensation increased 3.5 percent in the fourth quarter of 2007, leading to an increase of 2.6 percent in unit labor costs. When consumer prices are taken into account, real hourly compensation fell 1.4 percent. Unit profits fell 16.9 percent in the fourth quarter of 2007 and 10.2 percent in the previous quarter. The implicit price deflator increased 0.3 percent during the fourth quarter of 2007 after falling 1.6 percent in the third quarter.

When the annual average for 2007 was compared with that for 2006, labor productivity increased 1.4 percent in the nonfinancial corporate sector. In the previous six years, 2000 through 2006, output per hour increased an average of 2.6 percent per year. Output increased 2.1 percent in 2007, down from 3.0 percent in 2006, and hours rose 0.7 percent, compared with 2.2 percent during the previous year. (See table C.)

Hourly compensation grew 4.7 percent in 2007, and real hourly compensation increased 1.8 percent. The increase in hourly compensation was the largest in the series since 2000, when it had increased 7.1 percent. Total unit costs in 2007 rose 2.6 percent, reflecting a 3.2 percent increase in unit labor costs and a 1.1 percent increase in unit nonlabor costs. Unit profits fell 5.7 percent in 2007. This was the first decline since 2001, when the series fell 24.3 percent. The implicit price deflator, which reflects both the unit costs and unit profits measures, rose 1.6 percent in 2007.

Revised measures

With this release, hours for all sectors were revised back to 2000 to incorporate updated information on seasonal trends in Current Population Survey data on hours worked. Employment was revised historically to exclude secondary jobs of self employed and unpaid family workers in any month when they did not report hours worked in those jobs. Also employment of manufacturing proprietors is now calculated using the number of persons employed; previously it was the number of persons at work.

Output data for the manufacturing sectors 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 the U.S. Department of Commerce, together with information on price changes, primarily from the Bureau of Labor Statistics. These revisions begin with data for 1987 and incorporate revised information on intermediate inputs. (See USDL 08-0857, “Multifactor Productivity Trends in Manufacturing for 2006,” May 1, 2008 (http://www.bls.gov/news.release/pdf/prod3.pdf). Quarterly changes in manufacturing output and related measures also now reflect revised Indexes of Industrial Production, published by the Board of Governors of the Federal Reserve System on March 28, 2008. Appendix tables 1-3 display quarterly and annual data for manufacturing, durable manufacturing, and nondurable manufacturing beginning in 2003. 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.

A revised seasonally adjusted Consumer Price Index Research Series, prepared by the BLS Office of Prices and Living Conditions for the period 1978 to 2007, has been incorporated into our consumer price series. As a result, measures of real hourly compensation for all sectors were revised back to 1984. Complete quarterly and annual series are available on the BLS website.

Previous and revised measures for the fourth quarter and annual average of 2007 in the business, nonfarm business, and manufacturing sectors are compared in table D. In the business and nonfarm business sectors, productivity was revised down slightly in the fourth quarter, primarily due to downward revisions to output. Unit labor costs in these sectors were revised up from the increases reported March 5.

Fourth quarter productivity growth in the manufacturing sector was higher than reported March 5. Hours fell more than reported in March, and had the largest decline since the third quarter of 2003. The upward revision to productivity resulted in a downward revision to unit labor costs.

The 2007 annual average measures of real hourly compensation for the business, nonfarm business, and manufacturing sectors were revised downward due to a revision in the Consumer Price Index Research series. The 2007 annual averages in the manufacturing sector showed a downward revision in output, which led to a downward revision in productivity and an upward revision in unit labor costs.