2023 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 2023, Revised

Nonfarm business sector labor productivity increased 5.2 percent in the third quarter of 2023, the U.S. Bureau of Labor Statistics reported today, as output increased 6.1 percent and hours worked increased 0.9 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) The increase in labor productivity is the highest rate since the third quarter of 2020, when productivity increased 5.7 percent. From the same quarter a year ago, nonfarm business sector labor productivity increased 2.4 percent. (See table A1.)

Unit labor costs in the nonfarm business sector decreased 1.2 percent in the third quarter of 2023, reflecting a 3.9-percent increase in hourly compensation and a 5.2-percent increase in productivity. Unit labor costs increased 1.6 percent over the last four quarters. (See tables A1 and 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 productivity tend to reduce them. Real hourly compensation, which takes into account consumer prices, increased 0.3 percent in the third quarter of 2023, and increased 0.4 percent over the last four quarters.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all workers, including employees, proprietors, and unpaid family workers. During the current business cycle, starting in the fourth quarter of 2019, labor productivity has grown at an annual rate of 1.5 percent, as output grew at a 2.2-percent per year rate, outpacing hours worked, which grew at a 0.7-percent annual rate. The 1.5-percent annual rate of productivity growth in the current business cycle thus far is the same rate as the previous business cycle from the fourth quarter of 2007 through fourth-quarter 2019, and is below the long-term rate since the first quarter of 1947 (2.1 percent).

Manufacturing sector labor productivity declined 0.8 percent in the third quarter of 2023, as output decreased 0.3 percent and hours worked increased 0.5 percent. In the durable manufacturing sector, productivity decreased 1.8 percent, reflecting a 1.6-percent increase in output and a 3.4-percent increase in hours worked. Nondurable manufacturing sector productivity increased 2.3 percent, as output decreased 2.1 percent and hours worked decreased 4.2 percent. Total manufacturing sector productivity decreased 0.7 percent from the same quarter a year ago. (See tables A1, 3, 4, and 5.)

Unit labor costs in the total manufacturing sector increased 6.2 percent in the third quarter of 2023, reflecting a 5.4-percent increase in hourly compensation and a 0.8-percent decrease in productivity. Manufacturing unit labor costs increased 5.2 percent from the same quarter a year ago. (See tables A1 and 3.)

Manufacturing sector labor productivity has increased at an annual rate of 0.1 percent during the current business cycle, which began in the fourth quarter of 2019. This rate reflects output and hours worked growing at annual rates of 0.2 percent and 0.1 percent, respectively. This slow productivity growth rate follows the 0.0-percent annual rate of growth during the last business cycle that spanned the fourth quarter of 2007 through fourth-quarter 2019, and is below the long-term rate since the first quarter of 1987 of 2.1 percent.

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 2023 measures were announced today for the nonfinancial corporate sector. (See table A2.) Productivity increased 2.2 percent in the third quarter of 2023 as output and hours worked increased 3.1 percent and 0.8 percent, respectively. Productivity increased 1.2 percent in the nonfinancial corporate sector over the last four quarters. Unit profits of nonfinancial corporations increased 11.1 percent in the third quarter of 2023 and decreased 1.7 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 2023. Measures of output for the manufacturing sectors incorporate revised annual benchmark data from 1987 to 2021 released November 21 by BLS. The most notable revisions to manufacturing output from the incorporation of these data occurred with several upward revisions in 2018 and 2019 of between 0.1 and 0.3 percentage point and several downward revisions in 2020 and 2021 of between 0.1 and 0.3 percentage point.

In the third quarter of 2023, nonfarm business sector labor productivity increased 5.2 percent rather than the preliminary estimate of a 4.7-percent increase, reflecting a 0.2-percentage point upward revision to output and a 0.2-percentage point downward revision to hours worked. Unit labor costs were revised down 0.4 percentage point, reflecting a 0.5-percentage point upward revision to labor productivity; hourly compensation was not revised.

In the manufacturing sector, productivity decreased 0.8 percent rather than decreasing 0.7 percent as previously reported, reflecting a 0.2-percentage point downward revision to output and a 0.2-percentage point downward revision to hours worked. Durable manufacturing productivity decreased 1.8 percent rather than decreasing 1.4 percent as previously reported, and nondurable manufacturing productivity was revised up to an increase of 2.3 percent from the previously-reported increase of 2.1 percent. Total manufacturing unit labor costs were revised down 0.8 percentage point to an increase of 6.2 percent, the combined effect of a 0.8-percentage point downward revision to hourly compensation and a 0.1- percentage point downward revision to productivity.

In the second quarter of 2023, labor productivity, output, and hours worked were unrevised for the nonfarm business sector. Unit labor costs increased 2.6 percent, rather than increasing 3.2 percent as previously reported, due to a 0.7-percentage point downward revision to hourly compensation.

In the manufacturing sector, productivity was revised up 0.2 percentage point to an increase of 3.3 percent. Unit labor costs were revised down to an increase of 4.7 percent from the previously-reported increase of 6.3 percent. This revision is mainly due to a 1.6-percentage point downward revision to hourly compensation.

In the nonfinancial corporate sector, productivity increased 2.2 percent rather than increasing 2.1 percent as previously reported. Unit labor costs were not revised.

Quarterly and annual data for all sectors for recent years appear in tables 1-6. Full historical annual and quarterly measures can be found at www.bls.gov/productivity/tables/.

Calendar year 2024 release dates for Productivity and Costs news releases are now available at www.bls.gov/schedule/news_release/prod2.htm.

Upcoming Method Change

Beginning with the Productivity and Costs news release scheduled for March 7, 2024, estimates of hours worked by self-employed workers and unpaid family workers will reflect a method change to reduce volatility of the estimates. Self-employed and unpaid family workers accounted for 7.4 percent of hours worked in the nonfarm business sector in 2022. The method change will remove statistically insignificant variability during seasonal adjustment of the Current Population Survey (CPS) source data. In addition, volatility associated with respondent turnover will be reduced by adjusting respondent weights. These two adjustments by the BLS productivity program will dampen noise in the series without losing important information about cyclical changes in hours worked by self-employed and unpaid family workers. A more detailed discussion of the upcoming changes is forthcoming in the Monthly Labor Review in December 2023.

Durable Previous quarter -1.8 1.6 3.4 3.4 -0.2 5.3 manufacturing A year ago -0.8 0.2 1.0 3.8 0.2 4.6

Nondurable Previous quarter 2.3 -2.1 -4.2 8.8 5.0 6.4 manufacturing A year ago 0.2 -1.9 -2.1 5.5 1.9 5.3

Nonfinancial Previous quarter 2.2 3.1 0.8 3.9 0.3 1.7 corporate A year ago 1.2 2.1 0.9 4.5 0.9 3.3