2020 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 2020, Preliminary

Nonfarm business sector labor productivity increased 7.3 percent in the second quarter of 2020, the U.S. Bureau of Labor Statistics reported today, as output decreased 38.9 percent and hours worked decreased 43.0 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates, and show what the percent change would be if the quarterly rate continued for four quarters.) In the four quarters from the second quarter of 2019 to the second quarter of 2020, productivity increased 2.2 percent, reflecting an 11.8-percent decrease in output and a 13.7-percent decrease in hours worked. (See table A1.)

Unit labor costs in the nonfarm business sector increased at an annual rate of 12.2 percent in the second quarter of 2020, following an increase of 9.8 percent in the first quarter. Unit labor costs increased 5.7 percent over the last four quarters.

Historical Revisions to Productivity and Costs Data

Data in this release reflect the 2020 Annual Update of the National Income and Product Accounts (NIPA) released by the Bureau of Economic Analysis of the U.S. Department of Commerce on July 30, 2020, and revised measures of output for the manufacturing sectors released by BLS on July 21, 2020. See “Revised measures” section.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers. The 7.3- percent increase in nonfarm business sector labor productivity in the second quarter of 2020 was the largest quarterly increase since the second quarter of 2009, when output per hour increased 8.5 percent. The declines in both output and hours worked in the second quarter of 2020 were the largest in these series, which begin with data for first-quarter 1947.

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 labor productivity tend to reduce unit labor costs. The 12.2-percent increase in unit labor costs in second-quarter 2020 was the largest increase in this measure since the first quarter of 2014 (12.4 percent), and reflects a 20.4-percent increase in hourly compensation and a 7.3-percent increase in productivity. (See tables A1 and 2.)

Manufacturing sector labor productivity decreased at a 15.5 percent annual rate in the second quarter of 2020, as output fell 47.0 percent and hours worked dropped 37.3 percent. These were the largest quarterly declines in each of these series, which begin with data for 1987. Total manufacturing sector productivity declined 4.1 percent over the last four quarters, as output decreased 15.8 percent and hours worked decreased 12.2 percent. Productivity decreased 28.4 percent in the durable manufacturing sector in the second quarter of 2020, reflecting a 58.1-percent decrease in output and a 41.5-percent decrease in hours worked. Productivity decreased 4.9 percent in the nondurable manufacturing sector, as output decreased 33.2 percent and hours worked decreased 29.8 percent. (See tables A1, 3, 4 and 5.)

Unit labor costs in the total manufacturing sector increased 31.1 percent in the second quarter of 2020, and increased 9.4 percent from the same quarter a year ago. The increase in unit labor costs in the second quarter of 2020 was the largest in the series for total manufacturing, as were unit labor cost increases in the durable manufacturing and nondurable manufacturing sectors. (See table A1.)

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

Measures of output for the business, nonfarm business, and nonfinancial corporate sectors, and measures of compensation for all sectors, incorporate revised National Income and Product Accounts (NIPA) data released on July 30 by the Bureau of Economic Analysis, U.S. Department of Commerce. Measures of output for the manufacturing sectors incorporate revised annual benchmark data through 2018 released July 21 by BLS that incorporate Census Bureau Annual Survey of Manufactures data. As a result, all measures incorporating output, including labor productivity and unit labor costs, were revised back to 2015 for the business and nonfarm business sectors, back to 1999 for the nonfinancial corporate sector, and back to 1987 for the manufacturing sector. Because nonfinancial corporate sector output was revised in the index base year of 2012, all measures incorporating output were subject to further revision back to 1947; resulting revisions to percent changes are small.

Measures of hours worked for all sectors incorporate regular updates of source data for the first quarter of 2020. Hours worked and related measures for the business and nonfarm business sectors were revised back to 2013 due to revised NIPA data on government enterprises employment and on the proportion of industry compensation paid to employees of nonprofit institutions. Hours worked and related measures were subject to revision back to 2015 for the nonfinancial corporate sector due to the incorporation of revised NIPA data on the proportion of industry compensation paid to employees of corporations. Table B1 presents revised and previous labor productivity and related measures for the nonfarm business, business, and manufacturing sectors for the first quarter of 2020. Table A2 presents these measures for the nonfinancial corporate sector.

Nonfarm business sector productivity decreased 0.3 percent in the first quarter of 2020, a smaller decline than previously reported (-0.9 percent), reflecting a 0.5-percentage point downward revision to hours worked and a 0.1-percentage point upward revision to output. (See table B1.) A large upward revision to first-quarter unit labor costs--from an increase of 5.1 percent to an increase of 9.8 percent-- reflected a 5.2-percentage point upward revision to hourly compensation that was partially offset by the 0.6-percentage point upward revision to productivity. Hourly compensation increased at a 9.4-percent annual rate in the first quarter of 2020, and real hourly compensation increased 8.1 percent.

Manufacturing sector productivity was revised up and increased 1.6 percent in the first quarter of 2020, as output declined less and hours worked declined more than previously reported. Productivity was also revised up in both the durable and nondurable manufacturing subsectors. In the first quarter of 2020, total manufacturing unit labor costs increased 4.6 percent rather than increasing 6.9 percent as reported June 4, reflecting a 1.1-percentage point downward revision to hourly compensation and a 1.3- percentage point upward revision to productivity. (See table B1.)

Nonfinancial corporate sector productivity growth was revised up in the first quarter of 2020, to an increase of 0.3 percent, rather than the previously published decline of 1.3 percent. This revision was due both to a 1.1-percentage point upward revision to output and a 0.5-percentage point downward revision to hours worked; output declined 3.9 percent and hours worked decreased 4.2 percent. Productivity in nonfinancial corporations increased 0.4 percent from the first quarter of 2019 to the first quarter of 2020. Unit labor costs in the nonfinancial corporate sector were revised upward to an increase of 8.0 percent in the first quarter of 2020 from a preliminary estimate of 5.6 percent, as a large upward revision to hourly compensation was partially offset by an upward revision to productivity. Unit labor costs increased 2.5 percent from the same quarter last year. (See table A2.) Unit profits were revised down 0.9-percentage point and declined at a 44.2-percent annual rate in first-quarter 2020. (See table 6.)

Annual averages

Annual average productivity in the nonfarm business sector increased 1.7 percent in 2019, rather than increasing 1.9 percent as previously reported. Productivity increased 1.4 percent in 2018 and 1.2 percent in 2017. The average annual rate of productivity growth from 2007 to 2019--representing the most recent business cycle--was unchanged at 1.4 percent. Unit labor costs were revised up 0.1 percentage point to increases of 1.9 percent in both 2019 and 2018. (See table C1.)

Annual average manufacturing sector productivity grew 0.1 percent in 2019 as previously reported, and was revised down slightly to a 0.3-percent increase in 2018. The average annual rate of manufacturing productivity growth from 2007 to 2019 was revised up 0.1 percentage point, to 0.5 percent. A downward revision to unit labor costs of 0.5 percentage point in 2019, resulting in a 2.8- percent increase in this measure, reflected a similar downward revision to hourly compensation. Manufacturing sector unit labor costs increased 1.8 percent in 2018 and 3.6 percent in 2017. (See tables C1, 3, 4, and 5.)

Annual average productivity in the nonfinancial corporate sector was revised downward in 2019, from a 1.9-percent increase to a 0.6-percent increase. Productivity was revised up in both 2018 and 2017, from no change to a 0.6 percent increase in 2018, and from a 0.3-percent increase to a 0.9-percent increase in 2017. (See tables C1 and 6.) The average annual rate of productivity growth in the nonfinancial corporate sector from 2007 to 2019 was unrevised at 0.8 percent per year.

Appendix tables 1-6 and tables 1-6 present quarterly and annual data from first-quarter 2015 to second- quarter 2020. Complete quarterly and annual data series can be found on the Productivity and Costs home page: www.bls.gov/lpc/#data.

Coronavirus (COVID-19) Pandemic Impact on Productivity Data

BLS quarterly estimates of labor productivity combine output data with hours worked data based primarily on BLS Current Employment Statistics (CES) survey and supplemented with data from the Current Population Survey (CPS). The March reference period for these surveys largely predated many of the COVID-19-related job losses that occurred in the latter part of March. To capture these job losses, adjustments were made to employment and hours using supplementary data. Hours worked and related measures--including labor productivity--for the first quarter of 2020 reflect these adjustments.

Given the continued rapid changes in the economy, BLS explored the possibility of adjusting second quarter (Q2) estimates. BLS compared several adjustment methods for Q2 and found that the economic movements between April and June tended to be offsetting resulting in Q2 results that were similar to the usual methodology. Therefore no adjustments were made to Q2. For more information see www.bls.gov/covid19/productivity-and-costs-covid19-impacts-second-quarter-2020-preliminary.htm.