2020 Third 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.

Third Quarter 2020, Preliminary

Nonfarm business sector labor productivity increased 4.9 percent in the third quarter of 2020, the U.S. Bureau of Labor Statistics reported today, as output increased 43.5 percent and hours worked increased 36.8 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.)

The 4.9-percent gain in productivity in the third quarter was the second consecutive large increase in the measure--productivity had increased 10.6 percent in the second quarter of 2020. With the exception of the second quarter, productivity growth in the third quarter of 2020 was the largest quarterly increase since the fourth quarter of 2009 (5.7 percent). The two-quarter growth rate observed during the second and third quarters of 2020 (7.7 percent) is the highest rate of productivity growth over two quarters since the third and fourth quarters of 1965 (7.8 percent). Over the last four quarters, nonfarm business productivity increased 4.1 percent. (See table A1.)

Unit labor costs in the nonfarm business sector decreased at an annual rate of 8.9 percent in the third quarter of 2020, reflecting a 4.4-percent decrease in hourly compensation and a 4.9 percent increase in productivity. The third-quarter decline in unit labor costs was the largest decline since the first quarter of 2009, when the measure fell 13.4 percent. Unit labor costs increased 2.5 percent over the last four quarters. (See table 2.) 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.

A decline of 9.1 percent in real hourly compensation in the third quarter of 2020 was the largest decline in the series, and reflects the combination of a 4.4-percent decline in hourly compensation and a large increase in the BLS consumer price index series for the third quarter of 5.2 percent at an annual rate. The decline in real hourly compensation in the third quarter was preceded by a series-high quarterly increase of 24.4 percent in the second quarter of 2020.

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 10.6 percent gain in nonfarm business labor productivity in second-quarter 2020 reflected a decline in output of 36.8 percent and a decline in hours worked of 42.9 percent; these were the largest declines in both series which begin in the first quarter of 1947. In contrast, the 4.9-percent increase in productivity in third-quarter 2020 reflected the largest gains in the output and hours series, with output increasing 43.5 percent and hours increasing 36.8 percent. Although gains were historically large, the third-quarter 2020 output and hours worked index levels remain below their fourth quarter of 2019 levels, the last quarter before the coronavirus (COVID-19) pandemic began. Specifically, output remains 4.0 percent below its fourth-quarter 2019 level, recovering somewhat faster than hours worked, which remains 7.5 percent lower.

Manufacturing sector labor productivity increased at a 19.0 percent annual rate in the third quarter of 2020. This is the largest increase in the series, which begins in the first quarter of 1987. Manufacturing output increased at a series-high 54.8 percent annual rate and hours worked increased at a series-high 30.1 percent annual rate in the third quarter of 2020. The increase in total manufacturing productivity was concentrated in durable goods manufacturing, where productivity increased 44.2 percent as output grew 96.0 percent and hours worked rose 35.9 percent. In the nondurable goods manufacturing sector, productivity increased 1.2 percent as output and hours worked increased 22.7 percent and 21.2 percent, respectively. (See tables A1, 3, 4 and 5.) Total manufacturing sector productivity increased 0.7 percent over the last four quarters, as output decreased 6.1 percent and hours worked decreased 6.8 percent. (See tables A1 and 3.)

Unit labor costs in the total manufacturing sector decreased 18.2 percent in the third quarter of 2020, the largest decline since the first quarter of 1993, when the measure fell 19.8 percent. The third-quarter decrease followed a 28.4-percent increase in unit labor costs in the second quarter of 2020, the largest increase in the series. Unit labor costs increased 3.8 percent from the same quarter a year ago. (See table A1.)

The unprecedented increases in total manufacturing productivity, output, and hours in the third quarter of 2020 followed the largest decreases in these three measures in the second quarter of 2020, in which total manufacturing productivity fell 14.3 percent, output dropped 46.7 percent, and hours worked fell 37.8 percent. Although there were historically large increases in the third quarter, the total manufacturing output and hours index levels did not recover to their fourth quarter of 2019 levels--the last quarter before the coronavirus (COVID-19) pandemic began. Output remained 6.0 percent below its fourth-quarter 2019 level, while hours worked was 6.9 percent lower. (See table 3.)

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

Revised and previous measures for the second quarter of 2020 are shown in tables A2 and B1, covering the following major sectors: nonfarm business, business, manufacturing, and nonfinancial corporations.

In the second quarter of 2020, nonfarm business sector productivity increased 10.6 percent, slightly more than reported on September 3, and the largest increase since the first quarter of 1971, when the measure rose 12.3 percent. Unit labor costs increased 8.5 percent during the second quarter, slightly less than previously reported. (See table B1.)

Manufacturing sector productivity fell 14.3 percent in the second quarter; this was a slightly smaller decline than previously reported, though still the largest decline in this series. Durable manufacturing productivity was not revised, falling at the same 26.9 percent rate previously reported--the largest decline in the series. Nondurable manufacturing productivity was revised upward to a decline of 4.4 percent. Unit labor costs in total manufacturing increased 28.4 percent in the second quarter, rather than increasing 29.1 percent as reported September 3, and still represented the series-high value after revision.

Second-quarter 2020 measures of productivity and costs were revised for the nonfinancial corporate sector. Productivity increased 2.9 percent rather than increasing 3.1 percent as previously reported. Unit labor costs increased 23.5 percent rather than the preliminary estimate of a 23.3-percent increase. (See table A2.)

Complete annual and quarterly data series can be found on the Productivity and Costs home page: www.bls.gov/lpc/#data.