2020 Fourth 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.

Fourth Quarter and Annual Averages 2020, Preliminary

Nonfarm business sector labor productivity decreased 4.8 percent in the fourth quarter of 2020, the U.S. Bureau of Labor Statistics reported today, as output increased 5.3 percent and hours worked increased 10.7 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 fourth-quarter 2020 decline in productivity is the largest quarterly decline in the measure since a decline of 5.1 percent in the second quarter of 1981. From the fourth quarter of 2019 to the fourth quarter of 2020, nonfarm business productivity increased 2.5 percent, reflecting a 2.7-percent decline in output and a 5.0-percent decline in hours worked. (See table A1.)

Unit labor costs in the nonfarm business sector increased at an annual rate of 6.8 percent in the fourth quarter of 2020, the combined effect of a 1.7-percent increase in hourly compensation and a 4.8-percent decline in productivity. Nonfarm business unit labor costs increased 5.2 percent over the last four quarters. (See table A1.) 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.

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 fourth quarter of 2020 is the second consecutive quarter with increases in both output and hours, following historic declines in these measures in the second quarter of 2020. Output and hours worked remain 2.7 percent and 5.0 percent below their fourth-quarter 2019 levels, respectively.

Manufacturing sector labor productivity increased at a 3.0 percent annual rate in the fourth quarter of 2020, as output increased 11.2 percent and hours worked increased 8.0 percent. Productivity increased 2.1 percent from the same quarter a year ago. (See tables A1 and 3.) Unit labor costs in the total manufacturing sector decreased 2.4 percent in the fourth quarter of 2020, reflecting a 0.5-percent increase in hourly compensation and a 3.0-percent increase in productivity. Unit labor costs increased 6.5 percent from the same quarter a year ago. (See tables A1 and 3.)

The fourth quarter of 2020 is the second consecutive quarter with increases in both output and hours, following the historic declines in these measures in the second quarter of 2020. Output and hours worked remain 3.0 percent and 5.0 percent below their fourth-quarter 2019 levels, respectively.

Durable goods manufacturing productivity increased 5.3 percent in the fourth quarter of 2020, reflecting a 12.5-percent increase in output and a 6.8-percent increase in hours. Nondurable goods manufacturing productivity was unchanged in the fourth quarter of 2020, as output and hours both increased 9.9 percent. (See tables A1, 4, and 5.) 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 previously published measures for the third quarter of 2020 are shown in tables A2 and B1 and cover the following major sectors: nonfarm business, business, manufacturing, and nonfinancial corporations.

In the third quarter of 2020, nonfarm business productivity was revised up 0.5 percentage point, to an increase of 5.1 percent, rather than increasing 4.6 percent as previously reported. (See table B1.) Unit labor costs in the nonfarm business sector decreased 7.0 percent in the third quarter, rather than decreasing 6.6 percent as previously reported.

In the manufacturing sector, productivity in the third quarter of 2020 was revised up 0.3 percentage point, to an increase of 20.2 percent. Manufacturing unit labor costs decreased 12.4 percent, a 0.3- percentage point downward revision from the previous estimate. In the nonfinancial corporate sector, productivity was revised up 0.7 percentage point in the third quarter of 2020, to an increase of 1.5 percent. Output and hours worked increased 34.3 percent and 32.3 percent, respectively. (See table A2.)

Annual averages

Unit labor costs in the nonfarm business sector increased 4.3 percent in 2020, reflecting increases of 7.0 percent in hourly compensation and 2.6 percent in productivity. Real hourly compensation, which takes into account changes in consumer prices, increased 5.7 percent in 2020. This is the largest annual increase in real hourly compensation in the series, which begins in 1947.

In the manufacturing sector, productivity declined 0.2 percent in 2020, reflecting a decrease in output of 6.5 percent and a decrease in hours of 6.4 percent. The decrease in output was the largest annual decline since a decline of 12.0 percent in 2009. The decline in hours was the largest annual decline since a decline of 12.9 percent in 2009.

Manufacturing unit labor costs increased 7.4 percent in 2020. Manufacturing real hourly compensation increased 5.9 percent--the largest annual increase in the series, which begins in 1987. Quarterly and annual data, where available, for all sectors from 2018 to 2020 appear in tables 1-6. Full historical measures can be found on the Productivity and Costs home page: www.bls.gov/lpc/#data.

Upcoming Revisions

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.