2008 Fourth 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.

Fourth Quarter and Annual Averages, 2008 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 2008. Percent changes in business and nonfarm business productivity were:

Business sector -0.4 2.7 Nonfarm Business sector -0.4 2.8

Productivity growth for the fourth quarter of 2008 was revised down by 3.5 percentage points in the business sector and 3.6 percentage points in the nonfarm business sector from the estimates published February 5. In both sectors output was revised down by 3.2 percentage points and hours were revised up by 0.1 percentage point. Productivity growth during calendar year 2008 was not revised in either sector.

In the manufacturing sector, percent changes in productivity were:

Manufacturing sector -4.0 1.5 Durable goods manufacturing -14.8 1.6 Nondurable goods manufacturing 7.6 1.0

Data in this release reflect 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 2004 and appear in detail in tables 1 through 6 and appendix tables 1 through 6. See Revised Measures.

In the manufacturing sector, productivity fell 1.0 percentage point more than was reported Feb. 5, as a 1.0 percentage point downward revision to output was partially offset by a 0.1 percentage point downward revision to hours. Annual average growth in manufacturing productivity from 2007 to 2008 was revised up by 0.2 percentage point. 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.

Business

Productivity in the business sector decreased 0.4 percent in the fourth quarter of 2008, as output decreased 8.4 percent and hours of all persons decreased 8.0 percent (seasonally adjusted annual rates). The decline in output was the largest since the first quarter of 1982 (-8.6 percent) and the decline in hours was the largest since the first quarter of 1975 (-12.1 percent). When the fourth quarter of 2008 is compared to the fourth quarter of 2007 output per hour increased 2.2 percent (tables A and 1).

Hourly compensation grew at a 5.0 percent annual rate in the fourth quarter. This measure includes wages and salaries, supplements, employer contributions to employee-benefit plans, and taxes. Real hourly compensation increased 15.6 percent in the fourth quarter. This measure takes into account changes in consumer prices, which fell at a 9.2 percent annual rate in the fourth quarter.

Unit labor costs, which reflect changes in hourly compensation and productivity, increased 5.4 percent during the fourth quarter, after rising 3.3 percent in the third quarter. The implicit price deflator for business sector output edged down 0.1 percent in the fourth quarter of 2008, but increased 1.7 percent from the same quarter a year ago.

Nonfarm Business

In the nonfarm business sector, productivity decreased at an annual rate of 0.4 percent in the fourth quarter of 2008, as output decreased 8.7 percent and hours of all persons--employees, proprietors, and unpaid family workers--decreased 8.3 percent. As in the business sector, the decline in nonfarm business output was the largest since the first quarter of 1982 (-8.7 percent) and the decline in hours was the largest since the first quarter of 1975 (-12.0 percent). Productivity increased 2.2 percent during the last four quarters (table 2).

Hourly compensation grew 5.3 percent in the fourth quarter of 2008. Real hourly compensation rose steeply, 15.9 percent, when the 9.2 percent decrease in consumer prices was taken into account. This was the largest increase in the real hourly compensation series, which begins in the second quarter of 1947. As in the business sector, real hourly compensation rose 2.5 percent during the past four quarters.

Unit labor costs increased 5.7 percent in the fourth quarter and 1.8 percent over the last four quarters. The implicit price deflator for nonfarm business increased 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 4.0 percent, output dropped 17.7 percent, and hours fell 14.2 percent. These were the largest declines for each of 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 1.1 percent, output fell 8.0 percent and hours fell 6.9 percent (table A).

In the durable goods manufacturing sector, productivity dropped 14.8 percent in the fourth quarter of 2008, as output fell 26.9 percent and hours declined 14.2 percent. These were the largest decreases in output and output per hour for the entire series beginning in the second quarter of 1987. In the nondurable goods sector, productivity rose 7.6 percent in the fourth quarter as hours fell faster than output; output declined 7.7 percent and hours fell 14.2 percent.

Hourly compensation of all manufacturing workers increased 10.1 percent during the fourth quarter of 2008, and after taking into account the 9.2 percent decrease in consumer prices, real hourly compensation in manufacturing rose a series-high 21.2 percent. Hourly compensation also rose 10.1 percent in durable and nondurable manufacturing; real hourly compensation increased 21.2 percent and 21.3 percent, respectively.

Unit labor costs in manufacturing increased 14.7 percent in the fourth quarter of 2008. These cost increases were concentrated in durable goods manufacturing where unit labor costs rose 29.1 percent; unit labor costs rose 2.3 percent in nondurable goods industries. Over the last four quarters manufacturing unit labor costs increased 6.8 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 (table B). In both sectors, the productivity gains were the largest since 2004, due more to declines in hours than the small gains in output, and were larger than the 2.5 percent average annual increase during the 2000-2007 period.

In 2008, hourly compensation increased 3.6 percent and 3.7 percent in the business and nonfarm business sectors, 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 0.9 percent in both the business and nonfarm business sectors during 2008, as hourly compensation growth was largely offset by productivity growth. Unit labor costs had increased 1.4 percent from 2000 to 2007 in both sectors.

Percent change from previous year

Manufacturing

In the manufacturing sector, labor productivity rose 1.5 percent in 2008 as output fell 2.5 percent but hours fell faster, 3.9 percent (table B). Durable manufacturing output per hour increased 1.6 percent as output fell 2.6 percent and hours fell 4.2 percent, while in nondurable goods industries productivity increased 1.0 percent, output fell 2.4 percent and hours fell 3.4 percent. Total manufacturing productivity had grown at a 3.7 percent average annual rate from 2000 to 2007.

Hourly compensation of manufacturing workers increased 4.0 percent in 2008, which is the same as the average annual rate of growth 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 0.2 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.

Percent change, fourth quarter 2008

Percent change, third quarter 2008

Percent change, 2007 - 2008

Revised Measures

Quarterly and annual measures for all sectors were revised back to 2004 to incorporate the annual benchmark adjustment and updated information on seasonal trends from the BLS nonfarm payroll series (table C and 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. Full quarterly and annual historical series are available on the BLS website, http://www.bls.gov/lpc/#data .

Previous and revised productivity and related data for the third quarter, fourth quarter, and full year 2008 for business, nonfarm business, and manufacturing are displayed in Table C. In the business and nonfarm business sectors, productivity declined 0.4 percent in the fourth quarter of 2008, rather than increasing as reported Feb. 5. In both sectors, this resulted from a 3.2 percentage points downward revision to output, with hours little changed. Also in both sectors, the downward revisions to productivity and the 0.3 percentage point upward revisions to hourly compensation resulted in upward revisions to unit labor costs of 3.9 percentage points.

In the manufacturing sector, fourth-quarter productivity growth was revised down from -3.0 percent to -4.0 percent, due to the 1.0 percentage point downward revision to output; hours were revised down 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 13.3 percent to 14.7 percent.

Productivity growth was revised up in the business and nonfarm business sectors for the third quarter, due solely to downward revisions to hours; output was not revised. In the manufacturing sector, productivity declined less than previously reported, reflecting a downward revision to hours and a slight upward revision to output. Unit labor costs were revised up in the business and nonfarm business sectors for the third quarter, while they were revised down in the manufacturing sector.

For the year 2008, productivity grew at the same rates reported Feb. 5 in both the business and nonfarm business sectors--2.7 percent and 2.8 percent, respectively. Because hourly compensation was revised up in these two sectors, unit labor costs were revised up as well. In the manufacturing sector, an upward revision to productivity was offset by an upward revision to hourly compensation, leading to unit labor costs not being revised.

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 2008. Productivity growth was revised up from the preliminary estimate due to an upward revision to output and a downward revision to hours. Hourly compensation had an upward revision which, when paired with the upward revision to productivity, led to a slight upward revision to unit labor costs.

Third quarter 2008