2010 Second 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.

Second Quarter 2010, Preliminary

Nonfarm business sector labor productivity decreased at a 0.9 percent annual rate during the second quarter of 2010, the U.S. Bureau of Labor Statistics reported today, with output and hours rising 2.6 percent and 3.6 percent, respectively. (All quarterly percent changes in this release are seasonally adjusted annual rates.) The decline in output per hour follows five quarters of strong productivity growth. The second-quarter gain in hours worked was the largest since the first quarter of 2006 when hours rose 4.1 percent. From the second quarter of 2009 to the second quarter of 2010, both productivity and output increased 3.9 percent; hours were unchanged (tables A and 2).

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.

Data in this release reflect the regular multi-year revision to the National Income and Product Accounts (NIPA) released by the Bureau of Economic Analysis of the U.S. Department of Commerce on July 30, 2010. See Revised Measures. The presentation of the data in tables 1-6 has been reformatted, with the first panel displaying percent changes from the previous quarter, the second displaying percent changes from the corresponding quarter of the previous year, and the third displaying indexes. The index series have been rebased from 1992=100 to 2005=100. Data are presented in reverse chronological order.

Unit labor costs in nonfarm businesses edged up 0.2 percent in the second quarter of 2010, the result of productivity declining more than hourly compensation. Over the last four quarters, unit labor costs fell 2.8 percent as output per hour increased faster than hourly compensation (tables A and 2).

BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.

Manufacturing sector productivity grew 4.5 percent in the second quarter of 2010, as output rose 8.3 percent and hours worked increased 3.6 percent. Durable manufacturing sector productivity increased 11.2 percent as the increase in output outpaced the increase in hours. The reverse was true for nondurable manufacturing industries, where productivity decreased 2.8 percent, given that the increase in hours was larger than the increase in output (tables A, 3, 4 and 5).

Unit labor costs in manufacturing declined 6.1 percent in the second quarter of 2010 and fell 6.9 percent over the last four quarters (tables A and 3). The four-quarter decline was the largest in the series, which begins in the first quarter of 1988.

The data sources and methods used in the preparation of the manufacturing output series differ from those used in preparing the business and nonfarm business output series, and these measures are not directly comparable. See Technical Notes for further information on data sources.

Nonfinancial corporate sector productivity increased 9.1 percent in the first quarter of 2010 as output and hours rose 11.4 percent and 2.1 percent, respectively (tables D and 6).

Revised measures

Measures of output for the business and nonfarm business sectors and compensation for all sectors incorporate the revised National Income and Product Accounts (NIPA) data released on July 30 by the Bureau of Economic Analysis, U.S. Department of Commerce. These revisions begin in the first quarter of 2007. Output measures for all manufacturing sectors reflect historically revised indexes of industrial production released by the Board of Governors of the Federal Reserve System on June 25. Hours measures for all sectors were revised for 2003 forward to include revised NIPA data on employment in government enterprises and the proportion of total compensation paid to employees of corporations, in addition to 2007 U.S. Census Bureau data on employment in tax-exempt organizations. Table B presents previous and revised productivity and related measures for the business, nonfarm business and manufacturing sectors for the first quarter of 2010 and table C presents annual data for nonfarm business and total manufacturing from 2007 to 2009. Revised quarterly and annual series for recent years appear in tables 1-6 and in appendix tables 1-6. Full historical annual and quarterly measures can be found on the productivity and costs home page http://www.bls.gov/lpc/#data.

In the first quarter of 2010, nonfarm business productivity growth was revised up to 3.9 percent from 2.8 percent, reflecting an upward revision to output as hours rose at the same 1.1 percent rate reported previously. Unit labor costs fell 3.7 percent in the first quarter, a larger decline than reported June 3. In the manufacturing sector, productivity growth in the first quarter was revised down to 1.2 percent from 1.5 percent. Unit labor costs declined 6.2 percent rather than falling 1.5 percent as previously reported, reflecting a 5.0 percentage point downward revision to hourly compensation.

For the year 2009, nonfarm business productivity growth was revised down to 3.5 percent from the 3.7 percent increase reported June 3, the result of a small downward revision to output and a small upward revision to hours (table C). Unit labor costs declined less than previously reported. Small revisions to nonfarm business output, hours and unit labor costs did not alter the fact that these three measures displayed the largest annual declines since the series began in 1948. In manufacturing, productivity growth was revised up slightly to 2.0 percent, as output was revised up and hours were not revised. The decreases in manufacturing output (-10.9 percent) and hours (-12.6 percent) were the largest in the series, which extend back to 1988.

The largest revisions to annual data occur in 2008. In both nonfarm business and manufacturing, productivity growth was revised down along with output; hours were not revised. The 0.7 percent decrease in manufacturing productivity was the only annual productivity decline in the series, which begins in 1988. Also in both sectors, unit labor costs were revised up due to the combined effect of downward revisions to productivity and small upward revisions to hourly compensation. The increase in manufacturing unit labor costs (4.6 percent) was the largest in the series, which begins in 1988.

For the year 2007, nonfarm business productivity was revised down to 1.6 percent from 1.8 percent as output was revised down. Unit labor costs were revised up slightly. In manufacturing, productivity, hours and output changed at the same rate previously reported. Hourly compensation rose 1.0 percentage point less than previously reported, resulting in a similar downward revision to unit labor costs.

As revised, nonfarm business productivity increased at an average annual rate of 2.5 percent from 2000 to 2009 rather than the 2.7 percent rate reported previously. Manufacturing productivity grew at an annual average rate of 3.0 percent from 2000 to 2009, revised down from 3.2 percent.

In the nonfinancial corporate sector, revisions to output, hours and compensation affected productivity and unit labor costs for 2007 forward. For the year 2009, productivity was revised downward to 1.6 percent due to a downward revision in output (table D). In 2008 productivity was revised up 0.5 percentage point as output was revised by the same amount. In 2007 productivity was revised down to 0.6 percent from 1.0 percent as a downward revision to output combined with an upward revision to hours (table 6 and appendix table 6).

Sector Nonfarm Durable Nondurable Business Business Manufacturing Manufacturing Manufacturing Q to Q Y to Y Q to Q Y to Y Q to Q Y to Y Q to Q Y to Y Q to Q Y to Y