2008 Fourth 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.

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 fourth quarter and for the full year 2008. The seasonally adjusted annual rates of productivity change in the fourth quarter and the annual average changes were:

Business sector 3.1 2.7 Nonfarm business sector 3.2 2.8

In the fourth quarter of 2008, productivity increased 3.1 percent in the business sector, with output and hours decreasing 5.2 percent and 8.1 percent, respectively. Output per hour for the nonfarm business sector rose 3.2 percent as output declined 5.5 percent and hours fell 8.4 percent. For the full year 2008 productivity rose 2.7 percent in the business sector and 2.8 percent in the nonfarm business sector.

In the manufacturing sector, productivity changes were:

Manufacturing sector -3.0 1.3 Durable goods manufacturing -13.4 1.4 Nondurable goods manufacturing 7.6 1.0

Manufacturing productivity decreased for the third consecutive quarter; output per hour fell at a 3.0 percent annual rate in the fourth quarter. The fourth-quarter decline was concentrated in the durable goods sector. Output per hour in total manufacturing posted a 1.3 percent increase in 2008 on an annual average basis. 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 annual average data in table B. Detailed information is presented in tables 1 through 5.

The data in this release do not reflect the annual benchmark revision of the BLS Current Employment Statistics program data to be released on February 6, 2009. This benchmark will be incorporated in our next release on March 5, 2009.

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.

THIRD-TO-FOURTH QUARTER CHANGES, 2008

Business

Productivity in the business sector increased by 3.1 percent in the fourth quarter of 2008, reflecting a decrease of 5.2 percent in output and an even greater decline of 8.1 percent in hours of all persons (seasonally adjusted annual rates). The decline in output was the largest since the first quarter of 1982 (-8.6 percent) and the drop in hours was the largest since first quarter 1975 (-12.1 percent). When the fourth quarter of 2008 is compared to the fourth quarter of 2007, business sector productivity grew 2.7 percent, as output and hours fell 1.0 percent and 3.6 percent, respectively (table A). Business sector productivity had grown at a 2.5 percent average annual rate for the 2000-2007 period.

Hourly compensation grew 4.7 percent in the fourth quarter of 2008, up from a 4.2 percent increase one quarter earlier. This measure includes wages and salaries, supplements, employer contributions to employee-benefit plans, and taxes. Real hourly compensation takes into account changes in consumer prices, which fell at a 9.2 percent annual rate in the fourth quarter. The 15.3 percent fourth-quarter increase in real hourly compensation was the largest since the first quarter of 1950 when it increased 16.1 percent. When the fourth quarter of 2008 is compared to the fourth quarter of 2007, real hourly compensation increased 1.9 percent.

Unit labor costs, which relate hourly compensation to output per hour, increased 1.5 percent in the fourth quarter of 2008, as most of the 4.7 percent increase in hourly compensation was offset by the 3.1 percent productivity gain.

Nonfarm Business

In the nonfarm business sector, productivity rose 3.2 percent in the fourth quarter of 2008, as output decreased 5.5 percent and hours of all persons--employees, proprietors, and unpaid family workers--fell more, 8.4 percent (seasonally adjusted annual rates). As in the business sector, the declines in output and hours were the largest since the first quarter of 1982 for output (-8.7 percent) and the first quarter of 1975 for hours (-12.0 percent). During the four-quarter period ending with the fourth quarter of 2008, nonfarm business sector productivity grew 2.7 percent--similar to the 2.5 percent average rate of growth from 2000 to 2007 (table 2).

Hourly compensation in the nonfarm business sector rose 5.0 percent in the fourth quarter of 2008 following a 4.2 percent increase in the third quarter. When the 9.2 percent decrease in consumer prices was factored in, real hourly compensation jumped 15.6 percent during the fourth quarter (seasonally adjusted annual rates). This was the largest increase in real hourly compensation since the beginning of the series in the second quarter of 1947. However, real hourly compensation had declined in each of the first three quarters of 2008, and as in the business sector, the change from the same quarter a year ago was 1.9 percent.

Unit labor costs rose 1.8 percent in the fourth quarter of 2008, and 0.7 percent over the last four quarters. As in the business sector, unit labor costs increased at a 1.4 percent average annual rate from 2000 to 2007. The implicit price deflator for nonfarm business output declined 0.5 percent in the fourth quarter after increasing 4.7 percent in the previous quarter.

Manufacturing

Manufacturing productivity, output, and hours all declined in the fourth quarter of 2008; output per hour fell 3.0 percent, output dropped 16.7 percent, and hours fell 14.1 percent (seasonally adjusted annual rates). The decreases in hours and output were the largest for these series, which begin with data for the second quarter of 1987. From the fourth quarter of 2007 to the fourth quarter of 2008 manufacturing productivity decreased 1.4 percent, output fell 7.7 percent and hours declined 6.5 percent (table A). Manufacturing productivity had grown at a 3.7 percent average annual rate from 2000 to 2007.

In the durable goods manufacturing sector, productivity dropped 13.4 percent in the fourth quarter of 2008, as output fell 26.1 percent and hours declined 14.7 percent (table 4). These were the largest decreases in output per hour, hours and output for the entire series dating back to second- quarter 1987. In the nondurable goods sector, productivity rose 7.6 percent in the fourth quarter as hours fell faster than output; output declined 6.5 percent and hours dropped 13.1 percent (table 5).

Hourly compensation of all manufacturing workers increased 9.8 percent during the fourth quarter of 2008, reflecting increases of 10.1 percent in durable goods industries and 9.6 percent in nondurable goods industries. When the decrease in consumer prices was taken into account, real hourly compensation in total manufacturing increased 20.9 percent in the fourth quarter, which was the largest increase in the series.

Unit labor costs for the manufacturing sector rose 13.3 percent in fourth-quarter 2008. These cost increases were concentrated in durable goods manufacturing where unit labor costs rose 27.1 percent; unit labor costs rose 1.8 percent in nondurable goods industries. Over the last four quarters manufacturing unit labor costs increased 6.6 percent.

ANNUAL AVERAGE CHANGES, 2007-2008

Business and Nonfarm Business

When annual averages for 2008 were compared with annual averages for 2007, labor productivity increased 2.7 percent in the business sector and 2.8 percent in the nonfarm business sector. In both sectors, the productivity increases were the largest since similar gains in 2004, due more to the declines in hours than the small gains in output (table B).

Business:

Nonfarm Business:

Manufacturing:

In 2008, hourly compensation increased 3.3 percent and 3.4 percent in business and nonfarm business, respectively. Because consumer prices increased more, 3.8 percent, real hourly compensation fell slightly. The annual decline in this measure of purchasing power was the first since small declines occurred in three consecutive years--1993, 1994, and 1995.

Unit labor costs rose just 0.6 percent and 0.5 percent in the business and nonfarm business sectors in 2008, as hourly compensation growth was largely offset by productivity growth. Unit labor costs had increased 2.7 percent per year on average from 2005 to 2007.

Manufacturing

In the manufacturing sector, labor productivity rose 1.3 percent in 2008 as output fell 2.4 percent but hours fell faster, 3.7 percent (table B). Over the year there was little difference between the durable and nondurable manufacturing subsectors. Durable manufacturing output per hour increased 1.4 percent as output fell 2.5 percent and hours fell 3.9 percent, while in nondurable goods industries productivity increased 1.0 percent, output fell 2.4 percent, and hours fell 3.4 percent.

Hourly compensation of manufacturing workers increased 3.9 percent in 2008, consistent with the trend rate of 4.0 percent per year from 2000 to 2007. The gain in hourly compensation was offset by the 3.8 percent increase in consumer prices, and real hourly compensation edged up 0.1 percent. Unit labor costs in manufacturing increased 2.5 percent in 2008, as hourly compensation increased more than productivity. These costs had increased at a 0.3 percent average annual rate from 2000 to 2007.

Revised Measures

Current and previous measures for the third quarter of 2008 for the business, nonfarm business, and manufacturing sectors are compared in table C. In both the business and nonfarm business sectors, productivity growth was revised up slightly in the third quarter because hours worked fell faster than reported Dec. 3. The upward revisions to productivity led to small downward revisions to unit labor costs.

In the manufacturing sector, productivity fell 0.6 percentage points faster in the third quarter than previously reported, as a downward revision to output was partially offset by a downward revision to hours. As revised, manufacturing productivity decreased 3.3 percent, reflecting an 8.8 percent decrease in output and a 5.7 percent decrease in hours. Unit labor costs increased more in the third quarter than reported Dec. 3, reflecting both the downward revision to productivity and a small upward revision to hourly compensation.

Third quarter 2008

Revised Measures: Nonfinancial Corporations

Revised third-quarter productivity and costs measures for nonfinancial corporations also were announced today, and reflect updated information on output, compensation and employee hours. In the third quarter of 2008, productivity grew faster than reported on Dec. 3, as a result of both an upward revision to output and a downward revision to hours worked. Unit labor costs were revised down as the upward revision to productivity was larger than the upward revision to hourly compensation (table D).

Third quarter 2008

Real output for nonfinancial corporations was revised beginning with data for the first quarter of 2005 in the national income and product accounts (NIPA) data released by the Bureau of Economic Analysis, U.S. Department of Commerce on December 23, 2008. As a result of the incorporation of these revisions, output and all measures relying on output for this sector, such as productivity and unit labor costs, were subject to revision back to the first quarter of 2005. Revised data for 2006 forward appear in table 6. The full historical measures can be found via the productivity and costs home page of the BLS website, http://www.bls.gov/lpc/#data.