2021 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 2021, Revised

Nonfarm business sector labor productivity decreased 5.2 percent in the third quarter of 2021, the U.S. Bureau of Labor Statistics reported today, as output increased 1.8 percent and hours worked increased 7.4 percent. This is the largest decline in quarterly productivity since the second quarter of 1960, when the measure decreased 6.1 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 0.6 percent. This four-quarter rate is the largest decline since the fourth quarter of 1993, when the measure also declined 0.6 percent. (See table A1.)

Unit labor costs in the nonfarm business sector increased at an annual rate of 9.6 percent in the third quarter of 2021, reflecting a 3.9-percent increase in hourly compensation and a 5.2-percent decrease in productivity. Unit labor costs increased 6.3 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. In the third quarter of 2021, both output and hours worked increased for the fifth consecutive quarter 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 2.8 percent higher in third-quarter 2021 than it was in fourth-quarter 2019, corresponding to an annualized 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 1.8 percent in the third quarter of 2021, as output increased 5.1 percent and hours worked increased 7.0 percent. In the durable manufacturing sector, productivity increased 0.7 percent, with a 9.7-percent increase in output and an 8.9-percent increase in hours worked. Nondurable manufacturing sector productivity decreased 3.6 percent, as 0.3-percent growth in output was outpaced by 4.0-percent growth in hours worked. Total manufacturing sector productivity increased 2.2 percent from the same quarter a year ago. (See tables A1, 3, 4, and 5.)

Manufacturing sector output is now 1.0 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 3.2 percent below the fourth-quarter 2019 level. The manufacturing labor productivity index was 4.4 percent higher in third-quarter 2021 than in fourth-quarter 2019, corresponding to an annualized labor productivity growth rate of 2.5 percent during that period. 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 4.6 percent in the third quarter of 2021, reflecting a 2.7-percent increase in hourly compensation and a 1.8-percent decrease in productivity. Manufacturing unit labor costs increased 3.7 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.

Preliminary third-quarter 2021 measures were announced today for the nonfinancial corporate sector. (See table A2.) Productivity increased 0.7 percent in the third quarter of 2021 as output and hours worked increased 6.8 percent and 6.1 percent, respectively. As in the larger nonfarm business sector, both output and hours worked in the nonfinancial corporate sector have increased in each of the last five quarters. Output is now 5.2 percent above the fourth quarter 2019 level, while hours worked remain 1.2 percent lower than in fourth-quarter 2019, the last quarter not affected by the COVID-19 pandemic. Productivity increased 5.5 percent in the nonfinancial corporate sector over the last four quarters. Unit profits of nonfinancial corporations increased at an 8.3 percent annual rate in the third quarter of 2021 and increased 11.3 percent over the last four quarters. (See table 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 2021. Revisions to source data on compensation from BEA, reflecting their incorporation of data from the BLS Quarterly Census of Employment and Wages, resulted in revisions to measures of hourly compensation and unit labor costs in the second quarter of 2021 in all sectors. Measures of output for the manufacturing sectors incorporate revised annual benchmark data from 1987 to 2019 released November 18 by BLS. This revision primarily affected measures in 2018 and 2019; revisions to percent changes prior to 2018 did not exceed 0.1 percentage point.

In the third quarter of 2021, nonfarm business labor productivity decreased 5.2 percent rather than the preliminary estimate of a 5.0-percent decrease, reflecting a 0.1-percentage point upward revision to output and a 0.4-percentage point upward revision to hours worked. Unit labor costs were revised up 1.3 percentage points due primarily to a 1.0-percentage point upward revision to hourly compensation.

In the manufacturing sector, productivity decreased 1.8 percent rather than 1.0 percent as previously reported, reflecting a 0.6-percentage point downward revision to output and a 0.3-percentage point upward revision to hours worked. Durable manufacturing productivity increased 0.7 percent rather than increasing 1.4 percent as previously reported, reflecting a 0.2-percentage point downward revision to output and a 0.5-percentage point upward revision to hours worked. Nondurable manufacturing productivity was revised down to a decrease of 3.6 percent rather than a decrease of 2.6 percent as previously reported, due to a 1.0-percentage point downward revision to output; hours worked were unrevised. Total manufacturing unit labor costs were revised up 1.7 percentage points to an increase of 4.6 percent, the combined effect of a 0.8-percentage point upward revision to hourly compensation and a 0.8-percentage point downward revision to productivity.

In the second quarter of 2021, labor productivity, output, and hours worked were unrevised for the nonfarm business sector. Unit labor costs increased 5.9 percent, rather than increasing 1.1 percent as previously reported, due to a 4.9-percentage point upward revision to hourly compensation.

In the manufacturing sector, productivity was revised down 0.1 percentage point to an increase of 8.4 percent. Unit labor costs were revised up to an increase of 1.7 percent rather than the previously reported decrease of 3.5 percent. This large revision is mainly due to a 5.5-percentage point upward revision to hourly compensation.

In the nonfinancial corporate sector, productivity increased 0.8 percent rather than decreasing 1.8 percent as previously reported, due solely to a 2.8-percentage point upward revision to output; hours worked were unrevised. Unit labor costs were revised up 1.9 percentage points to an increase of 7.6 percent, reflecting a 4.7-percentage point upward revision to hourly compensation that was partially offset by a 2.6-percentage point upward revision to labor productivity.

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

Durable Previous quarter 0.7 9.7 8.9 1.7 -4.6 1.0 manufacturing A year ago 3.0 6.7 3.6 7.1 1.7 4.0

Nondurable Previous quarter -3.6 0.3 4.0 4.1 -2.3 8.0 manufacturing A year ago 1.0 5.5 4.4 3.8 -1.4 2.7

Nonfinancial Previous quarter 0.7 6.8 6.1 5.4 -1.2 4.7 corporate A year ago 5.5 12.1 6.2 5.3 0.1 -0.2