2021 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 2021, Preliminary

Nonfarm business sector labor productivity decreased 5.0 percent in the third quarter of 2021, the U.S. Bureau of Labor Statistics reported today, as output increased 1.7 percent and hours worked increased 7.0 percent. This is the lowest rate of quarterly productivity growth since the second quarter of 1981, when the measure decreased 5.1 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the third quarter of 2020 to the third quarter of 2021, nonfarm business sector labor productivity decreased 0.5 percent. The four-quarter rate is the lowest rate since the third quarter of 2011, when the measure also declined 0.5 percent (See table A1.)

Unit labor costs in the nonfarm business sector increased at an annual rate of 8.3 percent in the third quarter of 2021, reflecting a 2.9-percent increase in hourly compensation and a 5.0-percent decrease in productivity. Unit labor costs increased 4.8 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 productivity 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 third quarter of 2021 is the fifth consecutive quarter with increases in both output and hours worked, following historic declines in those measures in the second quarter of 2020. The output index is now 1.8 percent above the level seen in the fourth quarter of 2019, the last quarter not affected by the COVID-19 pandemic, while the hours worked index remains 1.0 percent below its fourth quarter 2019 level. (See tables A1 and 2.)

The nonfarm business labor productivity index is 2.9 percent higher in third-quarter 2021 than it was in fourth-quarter 2019, corresponding to an average annual growth rate of 1.6 percent during the pandemic period of fourth quarter 2019 through third quarter 2021. This rate is slightly higher than the 1.4-percent average annual growth rate during the previous business cycle--from 2007 to 2019--but below the long- term average rate since 1947 of 2.1 percent.

Manufacturing sector labor productivity decreased 1.0 percent in the third quarter of 2021, as output increased 5.7 percent and hours worked increased 6.7 percent. In the durable manufacturing sector, productivity increased 1.4 percent, with a 9.9-percent increase in output and an 8.4-percent increase in hours worked. Nondurable manufacturing sector productivity decreased 2.6 percent, as output (+1.3 percent) grew slower than hours worked (+4.0 percent). Total manufacturing sector productivity increased 2.4 percent from the same quarter a year ago. (See tables A1, 3, 4, and 5.)

Manufacturing sector output is now 1.1 percent above its level in the fourth quarter of 2019, the last quarter not affected by the COVID-19 pandemic. Hours worked in manufacturing remain 3.3 percent below the fourth-quarter 2019 level. The manufacturing labor productivity index is now 4.6 percent higher than in fourth-quarter 2019, reflecting growth at a 2.6-percent annual rate during the pandemic period of fourth quarter 2019 through third quarter 2021. This rate is much higher than the 0.2-percent average annual growth rate during the previous business cycle--from 2007 to 2019--and is just above the long-term rate of 2.3 percent per year from 1987 to 2020. (See tables A1 and 3.)

Unit labor costs in the total manufacturing sector increased 2.9 percent in the third quarter of 2021, reflecting a 1.9-percent increase in hourly compensation and a 1.0-percent decrease in productivity. Manufacturing unit labor costs increased 1.9 percent from the same quarter a year ago. (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.

Revised measures

Revised and previous measures for the second quarter of 2021 are shown in tables A2 and B1, covering the following major sectors: nonfarm business, business, manufacturing, and nonfinancial corporations.

In the second quarter of 2021, nonfarm business sector productivity was revised up, due primarily to an upward revision to output, and increased 2.4 percent rather than 2.1 percent as reported September 2. Unit labor costs increased 1.1 percent, slightly less than previously reported. (See table B1.)

Manufacturing sector productivity rose 8.5 percent in the second quarter; an upward revision of 0.5 percentage point that reflected both a 0.3-percentage point upward revision to output and a 0.2-percentage point downward revision to hours worked. Durable manufacturing productivity grew 5.7 percent, 1.1 percentage point higher than the previous estimate. Nondurable manufacturing productivity grew 9.8 percent, slightly lower than the prior estimate. Unit labor costs in total manufacturing were revised down 0.5-percentage point and decreased 3.5 percent in the second quarter, reflecting the upward revision to productivity.

Second-quarter 2021 measures of productivity and costs were revised for the nonfinancial corporate sector. Productivity decreased 1.8 percent rather than decreasing 4.0 percent as previously reported due to an upward revision to output; hours worked were not revised. Unit labor costs increased 5.7 percent rather than the preliminary estimate of 8.0 percent. (See table A2.)

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

Durable Previous quarter 1.4 9.9 8.4 0.8 -5.5 -0.6 manufacturing A year ago 3.2 6.8 3.5 4.9 -0.3 1.7

Nondurable Previous quarter -2.6 1.3 4.0 3.5 -2.9 6.2 manufacturing A year ago 1.3 5.8 4.4 3.3 -1.9 2.0