2008 Third 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.

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

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

In both sectors, hours were revised down more than output, leading to productivity increases which are 0.2 percentage point higher than in preliminary estimates published November 6.

In manufacturing, revised productivity changes in the third quarter were: -2.7 percent in manufacturing, 2.9 percent in durable goods manufacturing, and -10.2 percent in nondurable goods manufacturing.

In the manufacturing sector, productivity fell 1.7 percentage points more than was reported on November 6, as a 2.0 percent downward revision to output was partially offset by a 0.4 percent downward revision to hours. 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 productivity grew at a 1.5 percent annual rate during the third quarter of 2008, less than the 1.9 percent rate of growth from the third quarter of 2007 to the third quarter of 2008 and the 2.5 percent average annual rate from 2000 to 2007. Productivity growth in the third quarter was the result of hours worked falling faster than output. The hours decline of 3.2 percent was the largest since the fourth quarter of 2001 (4.2 percent), and the output decline of 1.7 percent was the largest since the third quarter of 2001 (3.1 percent).

Hourly compensation in the business sector increased 4.2 percent during the third quarter of 2008, following a 1.2 percent increase in the second quarter (seasonally adjusted annual rates). This series includes accrued wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Real hourly compensation fell 2.4 percent, the fourth consecutive quarter in which it declined. This reflected the 6.7 percent increase in consumer prices during the third quarter, the fastest growth since a similar increase in the third quarter of 1990.

The revised 2.6 percent third quarter increase in unit labor costs reverses the 2.4 percent decline in the second quarter. Unit labor costs increased 1.4 percent over the past four quarters. The change in unit labor costs approximates the change in hourly compensation less the change in productivity. The implicit price deflator for the business sector, which reflects changes in both unit labor costs and unit nonlabor payments, grew 4.5 percent in the third quarter of 2008. This was its fastest growth since the first quarter of 1990 (4.6 percent).

Nonfarm business

Productivity in the nonfarm business sector rose at a 1.3 percent annual rate in the third quarter of 2008, slower than the 2.1 percent rate over the last four quarters, and slower than the trend rate of 2.5 percent per year from 2000 to 2007. As revised, output fell 1.9 percent and hours fell 3.1 percent in the third quarter of 2008; the two measures had not declined as quickly since the third quarter of 2001 and the first quarter of 2002, respectively.

Hourly compensation in the nonfarm business sector rose 4.1 percent in the third quarter of 2008. This rate is similar to trends in recent years; hourly compensation grew between 3.6 percent and 4.1 percent each year since 2001. As in the business sector, real hourly compensation decreased 2.4 percent in nonfarm business during the third quarter, due to the increase in consumer prices.

Nonfarm business unit labor costs increased 2.8 percent in the third quarter of 2008. Over the last four quarters unit labor costs increased 1.4 percent. The implicit price deflator for the nonfarm business sector rose 4.9 percent in the third quarter, more than in any quarter since the third quarter of 1982 (5.0 percent).

Manufacturing

Manufacturing output per hour fell 2.7 percent in the third quarter of 2008, as output fell 7.8 percent and hours fell 5.3 percent. This is the largest quarterly decline in productivity in the entire series, going back to the second quarter of 1987. The decline in output was the largest since the first quarter of 1991, when output fell 8.0 percent. Third quarter 2008 saw the second consecutive quarter of negative manufacturing productivity growth; revised output per hour for the second quarter of 2008 fell 2.2 percent.

The third-quarter decline in manufacturing productivity was driven by a 10.2 percent decline in nondurable goods productivity; output per hour in durable goods industries increased 2.9 percent. The quarterly drop in nondurable goods productivity is the largest in the series. Nondurable goods output fell by 9.8 percent, 2.8 percentage points more than reported on November 6. In contrast to the large decline in output, hours in nondurable manufacturing rose slightly during the quarter, 0.4 percent (table 5).

In durable goods industries, a 5.8 percent decline in output was outpaced by an 8.4 percent drop in hours, yielding a productivity increase of 2.9 percent (table 4). The declines in output and hours in durable manufacturing had not been as large since the fourth quarter of 2001, when output fell 9.9 percent and hours dropped 14.5 percent. Complete historical series can be found on the productivity and costs homepage: http://www.bls.gov/lpc/#data.

The average hourly compensation of all manufacturing workers rose 4.7 percent in the third quarter of 2008, and increased more in the durable goods sector, 6.1 percent, than in the nondurable goods sector, 2.6 percent. Real hourly compensation for all manufacturing workers declined 1.9 percent in the third quarter, following declines of 0.5 percent and 2.7 percent in the first and second quarters of 2008.

Both the decrease in productivity and the increase in hourly compensation contributed to a 7.6 percent increase in unit labor costs in manufacturing during the third quarter--much higher than the 4.0 percent increase over the last four quarters and the 0.3 percent rate from 2000 to 2007. Unit labor costs increased 3.1 percent in durable goods industries and 14.3 percent in nondurable goods industries during the third quarter.

Nonfinancial Corporations

Third-quarter 2008 measures of productivity and costs also were released for nonfinancial corporations (tables B and 6). Output per all-employee hour grew at a 4.9 percent annual rate, with output rising 1.8 percent and hours of all employees falling 3.0 percent (seasonally adjusted annual rates). Over the last four quarters nonfinancial corporate sector productivity increased 3.5 percent. This 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 increased 5.0 percent during the third quarter, but when consumer prices are taken into account, real hourly compensation declined 1.6 percent. Real hourly compensation declined 1.2 percent since the third quarter of 2007.

Unit labor costs in the nonfinancial corporate sector remained steady, increasing just 0.1 percent during the third quarter of 2008; unit nonlabor costs increased 5.8 percent, and unit profits rose 24.6 percent (seasonally adjusted annual rates). As a result of these movements, the implicit price deflator for the output of nonfinancial corporations--which reflects a weighted average of these three measures--rose 4.0 percent.

Revised Measures

Current and previous measures for second and third quarters of 2008 for the business, nonfarm business, and manufacturing sectors are compared in table C. In the third quarter, revised estimates of productivity growth in the business and nonfarm business sectors are higher than those reported November 6, as downward revisions to hours were larger than downward revisions to output. Manufacturing productivity had a large downward revision in the third quarter as the downward revision to output outweighed the downward revision to hours.

Hourly compensation was revised down in all three sectors. In the business and nonfarm business sectors unit labor costs rose 2.6 percent and 2.8 percent, respectively, in the third quarter. This is 0.8 percent lower than previously reported, reflecting both the downward revision to hourly compensation and the upward revision to productivity. Hourly compensation was also revised down in manufacturing, but the large downward revision in manufacturing productivity resulted in an upward revision to unit labor costs.

Third quarter 2008

Second quarter 2008

There were also revisions to second quarter data for the business, nonfarm business, and manufacturing sectors. Hourly compensation, real hourly compensation, and unit labor costs were revised in all three of these sectors to reflect new information on employee compensation published by the Bureau of Economic Analysis of the U.S. Department of Commerce on November 25. Hourly compensation growth was revised down 2.6 percent in the business and nonfarm business sectors, leading to similar downward revisions to real hourly compensation and unit labor costs. Second-quarter increases in manufacturing hourly compensation and unit labor costs were revised down to 2.2 percent and 4.5 percent, respectively.

Manufacturing output in the second quarter was revised due to revised indexes of industrial production from the Board of Governors of the Federal Reserve. The downward revision of 0.3 percentage point led to a similar downward revision to manufacturing productivity.

Revised measures: Nonfinancial corporations

Measures for the nonfinancial corporate sector also were revised to reflect updated information on output and employee compensation during second-quarter 2008 (table D). Output and productivity were revised down by 0.9 percentage point, and hours declined at the same rate reported November 6. Hourly compensation growth was revised down by 1.4 percentage points, and because hourly compensation was revised downward more than productivity, unit labor costs fell faster than previously reported, at a rate of 5.0 percent.

Second quarter 2008