2020 Third 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.

Third Quarter 2020, Revised

Nonfarm business sector labor productivity increased 4.6 percent in the third quarter of 2020, the U.S. Bureau of Labor Statistics reported today, as output increased 43.4 percent and hours worked increased 37.1 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 4.6-percent gain in productivity in the third quarter follows an increase of 10.6 percent during the second quarter. Over the last four quarters, nonfarm business productivity increased 4.0 percent, reflecting a 3.4-percent decline in output and a 7.1-percent decline in hours worked. (See table A1.)

Unit labor costs in the nonfarm business sector decreased at an annual rate of 6.6 percent in the third quarter of 2020, the combined effect of a 2.3-percent decrease in hourly compensation and the 4.6- percent increase in productivity. The third-quarter decline in unit labor costs followed three consecutive quarterly increases, and nonfarm business unit labor costs increased 4.0 percent over the last four quarters. (See table 2.)

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 4.6- percent increase in productivity in third-quarter 2020 results from the largest gains in both the output (43.4 percent) and the hours worked (37.1 percent) series, which begin in 1947. In contrast, 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--the largest declines in both series. Overall, the output and hours worked index levels remain below their levels in the fourth quarter of 2019, the last quarter before the coronavirus (COVID-19) pandemic began. Output and hours worked remain 4.0 percent and 7.4 percent below their fourth-quarter 2019 levels, respectively.

Manufacturing sector labor productivity increased at a 19.9 percent annual rate in the third quarter of 2020 as output increased at a 56.2 percent annual rate and hours worked increased at a 30.3 percent annual rate. These series-high increases in the third quarter of 2020 follow the largest decreases in these three measures in the second quarter, when total manufacturing productivity fell 14.0 percent, output dropped 46.5 percent, and hours worked fell 37.8 percent. As of the third quarter of 2020, output remains 5.7 percent below its fourth-quarter 2019 index level, while hours worked is 6.8 percent lower. (See table 3.)

Durable goods manufacturing was responsible for the majority of the 19.9-percent total manufacturing productivity increase, as it saw an increase in productivity of 47.0 percent, reflecting a 99.8-percent increase in output and a 35.9-percent increase in hours worked. The sharp increase in durable manufacturing output in the third quarter was driven by motor vehicle production. Nondurable goods manufacturing productivity increased 0.7 percent in the third quarter of 2020, as output increased 22.6 percent and hours worked increased 21.8 percent. (See tables A1, 4, and 5.)

Unit labor costs in the total manufacturing sector decreased 12.1 percent in the third quarter of 2020, the largest decline since the first quarter of 2010, when the measure fell 13.0 percent. The third-quarter decrease followed a 44.8-percent increase in unit labor costs in the second quarter of 2020, the largest increase in the series. Unit labor costs increased 8.9 percent from the same quarter a year ago. Total manufacturing sector productivity increased 1.0 percent over the last four quarters, as output decreased 5.8 percent and hours worked decreased 6.7 percent. (See tables A1 and 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.

Preliminary third-quarter 2020 measures were announced today for the nonfinancial corporate sector. Productivity increased 0.8 percent in the third quarter of 2020 as output and hours worked increased 33.3 percent and 32.3 percent, respectively. These were the largest increases in both output and hours worked since the series began in the first quarter of 1947. In contrast, the 4.8-percent increase in second quarter 2020 productivity reflected the largest declines in the output and hours series, with output decreasing 38.3 percent and hours worked decreasing 41.1 percent. Output remains 5.7 percent below the fourth quarter 2019 level, while hours worked remains 7.1 percent lower. Productivity increased 1.7 percent in the nonfinancial corporate sector over the last four quarters. Unit profits of nonfinancial corporations increased at a 220.5 percent annual rate in the third quarter of 2020--the largest increase in the series starting in the first quarter of 1947--and increased 17.1 percent over the last four quarters. (See tables A2 and 6.)

Revised measures

Measures released today are based on more recent source data than were available for the preliminary report. Regular updates of source data from the BLS, the Bureau of Economic Analysis (BEA), and the Board of Governors of the Federal Reserve System are reflected in data for the second and third quarters of 2020. Measures of output for the manufacturing sectors incorporate revised annual benchmark data from 1987 to 2018 released November 19 by BLS; resulting revisions to percent changes are small.

In the third quarter of 2020, nonfarm business labor productivity increased 4.6 percent rather than the preliminary estimate of an increase of 4.9 percent, reflecting a 0.1-percentage point downward revision to output and a 0.3-percentage point upward revision to hours worked. Unit labor costs were revised up 2.3 percentage points due primarily to a 2.1-percentage point upward revision to hourly compensation.

In the manufacturing sector, productivity increased 19.9 percent rather than 19.0 percent as previously reported, reflecting a 1.4-percentage point upward revision to output and a 0.2-percentage point upward revision to hours worked. Durable manufacturing productivity increased 47.0 percent rather than increasing 44.2 percent as previously reported, reflecting a 3.8-percentage point upward revision to output; hours worked were unrevised. Nondurable manufacturing productivity was revised down to an increase of 0.7 percent rather than an increase of 1.2 percent as previously reported, due to a 0.1- percentage point downward revision to output and a 0.6-percentage point upward revision to hours worked. Total manufacturing unit labor costs were revised up 6.1 percentage points to a decrease of 12.1 percent, as a 7.9-percentage point upward revision to hourly compensation was partially offset by the 0.9-percentage point upward revision to productivity. 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.

In the second quarter of 2020, labor productivity, output, and hours worked were unrevised for the nonfarm business sector. Unit labor costs increased 12.3 percent, rather than increasing 8.5 percent as previously reported, due to a 4.3-percentage point upward revision to hourly compensation.

In the manufacturing sector, productivity was revised up 0.3 percentage point to a decrease of 14.0 percent, due to an upward revision to output; hours worked were unrevised. Unit labor costs were revised up to an increase of 44.8 percent rather than the previously reported increase of 28.4 percent. This large revision is mainly due to a 14.4-percentage point upward revision to hourly compensation.

In the nonfinancial corporate sector, productivity increased 4.8 percent rather than 2.9 percent as previously reported, due solely to a 1.1-percentage point upward revision to output; hours worked were unrevised. Unit labor costs were revised up 1.2 percentage points to an increase of 24.7 percent, reflecting a 1.9-percentage point upward revision to labor productivity and a 3.6-percentage point upward revision to hourly compensation.

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

Calendar year 2021 release dates for Productivity and Costs news releases are now available at www.bls.gov/schedule/news_release/prod2.htm.

Upcoming Methodology Change

Beginning with the Productivity and Costs news release scheduled for March 4, 2021, BLS will extend methodology improvements made since release of first-quarter 2020 data to the remaining seasonally adjusted CPS series used by the major sector labor productivity program. Several prior years of hours worked data and related measures will be revised.

Previously, BLS improved seasonal adjustment of CPS data on hours worked by the nonfarm self- employed and all farm workers to account for extreme values in March and April due to the impact of the COVID-19 pandemic. Seasonal adjustment software was updated from X12ARIMA to X13ARIMA-SEATS from the U.S. Census Bureau. This same methodology change will be used for the remaining seasonally adjusted CPS series beginning with the revised fourth-quarter 2020 data.