2008 Third 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.

Third 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 third quarter of 2008. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were:

1.3 percent in the business sector and 1.1 percent in the nonfarm business sector.

In both sectors, productivity gains were smaller than in the first two quarters of 2008, and were the result of hours at work falling faster than output. (See table A) . In manufacturing, productivity changes in the third quarter were:

-1.0 percent in manufacturing, 3.3 percent in durable goods manufacturing, and -7.3 percent in nondurable goods manufacturing.

Manufacturing productivity fell for the second consecutive quarter; the third-quarter decline was concentrated in the nondurable goods sector, whereas the second-quarter decrease was due to a drop in durable goods productivity. 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. Third-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

Business sector output per hour grew 1.3 percent in the third quarter of 2008 as output decreased 1.5 percent and hours worked by all persons--employees, proprietors, and unpaid family workers--fell 2.8 percent (seasonally adjusted annual rates). The decline in output was the largest since the third quarter of 2001, when output fell 3.1 percent. Hours had not dropped as much in one quarter since the first quarter of 2002, (-3.1 percent). From the third quarter of 2007 to the third quarter of 2008, productivity increased 1.8 percent; output edged up 0.3 percent and hours decreased 1.5 percent in the business sector.

Hourly compensation in the business sector increased at an annual rate of 4.7 percent during the third quarter of 2008. 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 by 1.9 percent in the third quarter of 2008.

Changes in unit labor costs approximate the change in hourly compensation less the change in productivity. In the third quarter of 2008, unit labor costs rose at a 3.4 percent annual rate. The implicit price deflator for business sector output, which reflects changes in both unit labor cost and unit nonlabor payments, rose 4.5 percent in the third quarter of 2008.

Nonfarm business

Productivity increased 1.1 percent in the nonfarm business sector in the third quarter of 2008; output and hours fell 1.7 percent and 2.7 percent, respectively. The decline in output was the largest since third-quarter 2001 (-2.9 percent), and the drop in hours was the largest since the first quarter of 2002 (-3.4 percent). Over the last four quarters, nonfarm business output per hour increased 2.0 percent; output rose 0.3 percent, and hours fell 1.7 percent. From 2000 to 2007, nonfarm productivity increased at a 2.5 percent average annual rate, as output grew 2.5 percent and hours edged up 0.1 percent on average.

Nonfarm hourly compensation increased at a 4.7 percent annual rate in the third quarter of 2008. Real hourly compensation decreased 1.9 percent in the third quarter, as consumer prices increased 6.7 percent (seasonally adjusted annual rates).

Unit labor costs in the nonfarm business sector increased 3.6 percent during the third quarter of 2008 and 2.3 percent over the last four quarters. The implicit price deflator for nonfarm business output increased 5.0 percent in the third quarter of 2008.

Manufacturing

Manufacturing output per hour decreased 1.0 percent in the third quarter of 2008; output fell 5.8 percent and hours of all persons declined 4.9 percent (seasonally adjusted annual rates). Productivity increased 3.3 percent in durable goods industries as the 4.7 percent decline in output was outpaced by a 7.7 percent decline in hours. By contrast, productivity declined 7.3 percent in the nondurable goods sector in the third quarter as output fell 7.0 percent while hours increased 0.4 percent. Total manufacturing productivity grew 1.1 percent from the third quarter of 2007 to the third quarter of 2008, compared to a 3.7 percent average annual growth rate from 2000 to 2007.

Hourly compensation of manufacturing workers increased 5.0 percent during the third quarter of 2008, reflecting a 6.0 percent gain in the durable goods subsector and a 3.7 percent gain in nondurable goods industries. Real hourly compensation for total manufacturing decreased 1.6 percent in the third quarter.

Unit labor costs in manufacturing rose 6.1 percent in the third quarter of 2008, reflecting a 2.6 percent increase in durable goods industries and an 11.8 percent jump in nondurable goods industries. Total manufacturing sector unit labor costs have increased 3.9 percent since the third quarter of 2007.

Revised Measures

Revised and previous measures for the second quarter of 2008, for the business, nonfarm business, and manufacturing sectors are compared in table B. Hours declined at the same rates reported September 4 in all sectors. In the business and nonfarm business sectors output was revised downward, resulting in a corresponding downward revision to productivity. In the manufacturing sector productivity change, while negative, was revised up due to a small upward revision to output.

Second quarter 2008

In all three sectors, hourly compensation was revised down slightly. In the business and nonfarm business sectors, unit labor costs were revised upwards--this was the result of productivity being revised down more than hourly compensation. In manufacturing both the upward revision to productivity and the downward revision to hourly compensation contributed to a downward revision to unit labor costs.

Revised measures: Nonfinancial Corporations

Productivity and cost measures for nonfinancial corporations for the second quarter of 2008 also were revised. Revised productivity growth was 8.6 percent due to an upward revision in output; hours were virtually unchanged (table C). Productivity grew 3.0 percent in the sector when measured over the four quarters ending with the second quarter (table 6).

Second quarter 2008

Unit labor costs were revised down from -1.8 percent to -4.6 percent--the result of productivity being revised up while hourly compensation remained unrevised.