2016 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 2016, Revised

Nonfarm business sector labor productivity increased at a 1.3-percent annual rate during the fourth quarter of 2016, the U.S. Bureau of Labor Statistics reported today, as output increased 2.4 percent and hours worked increased 1.0 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the fourth quarter of 2015 to the fourth quarter of 2016, productivity increased 1.0 percent, reflecting increases in output and hours worked of 2.2 percent and 1.2 percent, respectively. (See table A1.) Annual average productivity increased 0.2 percent from 2015 to 2016. (See table C1.)

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. Measures released today were based on more recent source data than were available for the preliminary report.

Unit labor costs in the nonfarm business sector increased 1.7 percent in the fourth quarter of 2016, reflecting a 3.0-percent increase in hourly compensation and a 1.3-percent increase in productivity. Unit labor costs increased 2.0 percent over the last four quarters. (See tables A1 and 2.)

Historical Revisions to Productivity and Costs Data

Data in this release reflect the annual benchmark revision of BLS Current Employment Statistics program data on nonfarm employment and hours, and the revised seasonal adjustment of those data. The data also reflect an improvement in the methodology for estimating hours worked. See Revised measures.

BLS calculates 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 labor productivity increased 2.0 percent in the fourth quarter of 2016, as output increased 1.6 percent and hours worked decreased 0.4 percent. Output per hour increased 1.5 percent in the durable goods manufacturing sector and 2.7 percent in the nondurable goods sector. Over the last four quarters, manufacturing sector productivity increased 0.5 percent, as output increased 0.5 percent and hours worked were unchanged. (See tables A1, 3, 4, and 5.) Unit labor costs in manufacturing increased 2.4 percent in the fourth quarter of 2016 and rose 2.1 percent from the same quarter a year ago. Hourly compensation increased 4.4 percent in the fourth quarter of 2016.

The concepts, sources, and methods used for the manufacturing output series differ from those used in the business and nonfarm business output series; these output measures are not directly comparable. See the Technical Notes for a more detailed explanation.

Revised measures

Quarterly and annual measures of hours and related series–including productivity–were revised historically for all major sectors. The revisions incorporate revised Current Employment Statistics (CES) program data published February 3, 2017. From 2012 to 2016, the data were subject to revision as a result of annual benchmarking of CES data and revised seasonal adjustment of those data. Prior to 2012, there were small revisions due to CES coverage changes affecting selected industries. Revisions to hours data also reflect an improvement to methodology for estimating hours worked, including the incorporation of detailed industry ratios of hours worked to hours paid, provided by the National Compensation Survey; the historical revisions due to this methodological change affected quarterly data back to 1989 and annual data back to 1990. (For more information see www.bls.gov/lpc/hwhpnew.htm.) Index measures related to hours show full historical revisions because the 2009 base year values were revised. In addition to revisions to hours data, third quarter, fourth quarter, and annual average data for 2016 were revised to incorporate regular updates of source data on output and compensation.

Revised and previous measures for the fourth quarter of 2016 are shown in table B1 for the business, nonfarm business, and manufacturing sectors. In the fourth quarter of 2016, nonfarm business productivity was not revised, increasing at the same 1.3-percent rate reported February 2; both output and hours worked were revised up slightly to rates of 2.4 percent and 1.0 percent, respectively. Unit labor costs were not revised, increasing at the same 1.7- percent rate as previously reported.

Manufacturing productivity increased 2.0 percent rather than 0.7 percent in the fourth quarter of 2016, reflecting both an upward revision to output and a downward revision to hours. Because the upward revision to productivity was larger than an upward revision to hourly compensation, manufacturing unit labor costs increased 2.4 percent, rather than the 3.3-percent rate reported in the preliminary release. (See table B1.)

In the third quarter of 2016, nonfarm business productivity growth was revised down slightly to an increase of 3.3 percent, due solely to a small upward revision to hours. Unit labor costs increased 0.7 percent, more than previously reported, reflecting a downward revision to productivity and a 0.4- percentage point upward revision to hourly compensation. In the manufacturing sector, productivity was unchanged from the second quarter to the third quarter of 2016, as previously reported. Unit labor costs were revised up and increased 4.1 percent, rather than 3.3 percent as previously reported, reflecting an upward revision to hourly compensation. (See table B2.) Nonfinancial corporate sector productivity increased 6.3 percent in the third quarter of 2016, slightly lower than previously reported, with the revision due solely to an upward revision to hours. (See table A2.)

Unit labor costs in the nonfarm business sector rose 2.6 percent in 2016, reflecting increases of 2.9 percent in hourly compensation and 0.2 percent in productivity. Real hourly compensation, which takes into account changes in consumer prices, increased 1.6 percent in 2016. In each of the last 3 years (2014, 2015, and 2016), real hourly compensation growth has outpaced productivity growth; prior to 2014, the last year in which real hourly compensation had grown faster than productivity was 2000.

In the manufacturing sector, productivity increased 0.3 percent in 2016, similar to the 0.2-percent rate in 2015; in both years productivity was revised down due to an upward revision to hours worked. Manufacturing productivity increased at an average annual rate of 0.5 percent over the last 5 years (2011 to 2016), which is well below the growth rate of 3.2 percent from 1987 to 2016. Unit labor costs increased 2.7 percent in 2016, rather than 2.6 percent as reported February 2. (See table C1.)

Quarterly and annual data for all sectors from 2014 to 2016 appear in tables 1-6. Full historical measures can be found on the Productivity and Costs home page, www.bls.gov/lpc/#data.

Durable Previous quarter 1.5 1.4 -0.1 4.2 0.7 2.6 Manufacturing A year ago 1.3 1.0 -0.2 2.7 0.9 1.4

Nondurable Previous quarter 2.7 1.7 -1.0 4.8 1.3 2.0 Manufacturing A year ago -0.6 -0.2 0.3 2.4 0.5 2.9