2023 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 2023, Preliminary

Nonfarm business sector labor productivity increased 3.2 percent in the fourth quarter of 2023, the U.S. Bureau of Labor Statistics reported today, as output increased 3.7 percent and hours worked increased 0.4 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the same quarter a year ago, nonfarm business sector labor productivity increased 2.7 percent. (See table A1.) Annual average productivity increased 1.2 percent from 2022 to 2023. (See table C1.)

Unit labor costs in the nonfarm business sector increased 0.5 percent in the fourth quarter of 2023, reflecting a 3.7-percent increase in hourly compensation and a 3.2-percent increase in productivity. Unit labor costs increased 2.3 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 0.9 percent in the fourth quarter of 2023, and increased 1.8 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 1.6 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 1.6-percent annual rate of productivity growth in the current business cycle thus far is just 0.1-percentage point above the previous business cycle rate 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 increased 2.3 percent in the fourth quarter of 2023, as output decreased 2.4 percent and hours worked decreased 4.6 percent. The 4.6-percent decrease in hours worked is the largest decline since the historic decline in the second quarter of 2020. In the durable manufacturing sector, productivity increased 1.4 percent, reflecting a 4.4-percent decrease in output and a 5.7-percent decrease in hours worked. Nondurable manufacturing sector productivity increased 2.5 percent, as output decreased 0.3 percent and hours worked decreased 2.7 percent. Total manufacturing sector productivity increased 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 4.2 percent in the fourth quarter of 2023, reflecting a 6.6-percent increase in hourly compensation and a 2.3-percent increase in productivity. Manufacturing unit labor costs increased 5.4 percent from the same quarter a year ago. (See tables A1 and 3.)

Manufacturing sector labor productivity has increased at an annual rate of 0.2 percent during the current business cycle, which began in the fourth quarter of 2019. This rate reflects a 0.1-percent growth rate for output and a 0.2-percent rate of decline for hours worked. 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.

Revised measures

Revised and previously published measures for the third quarter of 2023 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 2023, nonfarm business productivity was revised down 0.3 percentage point, to an increase of 4.9 percent, due to a 0.3-percentage point downward revision to output. (See table B1.) Unit labor costs decreased 1.1 percent in the third quarter, rather than decreasing 1.2 percent as previously reported.

In the manufacturing sector, productivity declined 0.8 percent in the third quarter of 2023 as previously reported. Unit labor costs were revised upwards 0.1 percentage point to an increase of 6.3 percent.

As for the nonfinancial corporate sector, productivity was revised up 0.3 percentage point in the third quarter of 2023 to an increase of 2.5 percent. This revision reflects a 0.2-percentage point upward revision to output to an increase of 3.3 percent. Hours worked were unrevised. (See table A2.)

Annual averages

Unit labor costs in the nonfarm business sector increased 2.9 percent in 2023, reflecting an increase of 4.2 percent in hourly compensation and an increase of 1.2 percent in productivity. Real hourly compensation, which takes into account changes in consumer prices, increased 0.1 percent in 2023.

In the manufacturing sector, productivity decreased 0.8 percent in 2023, reflecting a decrease in output of 0.5 percent and an increase in hours of 0.3 percent.

Manufacturing unit labor costs increased 5.5 percent in 2023, as hourly compensation increased 4.7 percent while productivity decreased 0.8 percent. Manufacturing real hourly compensation increased 0.5 percent.

Quarterly and annual data for all sectors from 2021 forward appear in tables 1-6. Full historical measures can be found on the Productivity and Costs home page: www.bls.gov/productivity/tables/.

Upcoming Revisions

Data in this release do not reflect the annual benchmark revision of the BLS Current Employment Statistics program data to be released February 2, 2024. This benchmark will be incorporated in the next release on March 7, 2024.

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 available in the Monthly Labor Review at www.bls.gov/opub/mlr/2023/article/an-improved-estimate-of-self-employment-hours.htm.

Durable Previous quarter 1.4 -4.4 -5.7 9.0 6.0 7.4 manufacturing A year ago 0.0 -0.3 -0.3 6.4 3.1 6.4