U.S. labor productivity decreased at 0.9 percent in second quarter

Non-farm business sector labor productivity decreased at a 0.9 percent annual rate during the second quarter of 2010, the U.S. Bureau of Labor Statistics reported on August 9, with output and hours rising 2.6 percent and 3.6 percent, respectively. (All quarterly percent changes in this release are seasonally adjusted annual rates.) The decline in output per hour follows five quarters of strong productivity growth. The second-quarter gain in hours worked was the largest since the first quarter of 2006 when hours rose 4.1 percent. From the second quarter of 2009 to the second quarter of 2010, both productivity and output increased 3.9 percent; hours were unchanged.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors and unpaid family workers. Unit labor costs in non-farm businesses edged up 0.2 percent in the second quarter of 2010, the result of productivity declining more than hourly compensation. Over the last four quarters, unit labor costs fell 2.8 percent as output per hour increased faster than hourly compensation.

BLS defines 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.

Manufacturing sector productivity grew 4.5 percent in the second quarter of 2010, as output rose 8.3 percent and hours worked increased 3.6 percent. Durable manufacturing sector productivity increased 11.2 percent as the increase in output outpaced the increase in hours. The reverse was true for non-durable manufacturing industries, where productivity decreased 2.8 percent, given that the increase in hours was larger than the increase in output.

Unit labor costs in manufacturing declined 6.1 percent in the second quarter of 2010 and fell 6.9 percent over the last four quarters. The four-quarter decline was the largest in the series, which begins in the first quarter of 1988.

The data sources and methods used in the preparation of the manufacturing output series differ from those used in preparing the business and non-farm business output series, and these measures are not directly comparable.

Non-financial corporate sector productivity increased 9.1 percent in the first quarter of 2010 as output and hours rose 11.4 percent and 2.1 percent, respectively.

Revised measures
Measures of output for the business and non-farm business sectors and compensation for all sectors incorporate the revised National Income and Product Accounts (NIPA) data released on July 30 by the Bureau of Economic Analysis, U.S. Department of Commerce. These revisions begin in the first quarter of 2007. Output measures for all manufacturing sectors reflect historically revised indexes of industrial production released by the Board of Governors of the Federal Reserve System on June 25. Hours measures for all sectors were revised for 2003 forward to include revised NIPA data on employment in government enterprises and the proportion of total compensation paid to employees of corporations, in addition to 2007 U.S. Census Bureau data on employment in tax-exempt organizations. Table B presents previous and revised productivity and related measures for the business, non-farm business and manufacturing sectors for the first quarter of 2010 and Table C presents annual data for non-farm business and total manufacturing from 2007 to 2009. Revised quarterly and annual series for recent years appear in tables 1-6 and in appendix tables 1-6. Full historical annual and quarterly measures can be found on the productivity and costs home page http://www.bls.gov/lpc/#data.

In the first quarter of 2010, non-farm business productivity growth was revised up to 3.9 percent from 2.8 percent, reflecting an upward revision to output as hours rose at the same 1.1 percent rate reported previously. Unit labor costs fell 3.7 percent in the first quarter, a larger decline than reported June 3. In the manufacturing sector, productivity growth in the first quarter was revised down to 1.2 percent from 1.5 percent. Unit labor costs declined 6.2 percent rather than falling 1.5 percent as previously reported, reflecting a 5.0 percentage point downward revision to hourly compensation.

For the year 2009, non-farm business productivity growth was revised down to 3.5 percent from the 3.7 percent increase reported June 3, the result of a small downward revision to output and a small upward revision to hours. Unit labor costs declined less than previously reported. Small revisions to non-farm business output, hours and unit labor costs did not alter the fact that these three measures displayed the largest annual declines since the series began in 1948. In manufacturing, productivity growth was revised up slightly to 2.0 percent, as output was revised up and hours were not revised. The decreases in manufacturing output (-10.9 percent) and hours (-12.6 percent) were the largest in the series, which extend back to 1988.

The largest revisions to annual data occur in 2008. In both non-farm business and manufacturing, productivity growth was revised down along with output; hours were not revised. The 0.7 percent decrease in manufacturing productivity was the only annual productivity decline in the series, which begins in 1988. Also in both sectors, unit labor costs were revised up due to the combined effect of downward revisions to productivity and small upward revisions to hourly compensation. The increase in manufacturing unit labor costs (4.6 percent) was the largest in the series, which begins in 1988.

For the year 2007, non-farm business productivity was revised down to 1.6 percent from 1.8 percent as output was revised down. Unit labor costs were revised up slightly. In manufacturing, productivity, hours and output changed at the same rate previously reported. Hourly compensation rose 1.0 percentage point less than previously reported, resulting in a similar downward revision to unit labor costs.

As revised, non-farm business productivity increased at an average annual rate of 2.5 percent from 2000 to 2009 rather than the 2.7 percent rate reported previously. Manufacturing productivity grew at an annual average rate of 3.0 percent from 2000 to 2009, revised down from 3.2 percent.

In the non-financial corporate sector, revisions to output, hours and compensation affected productivity and unit labor costs for 2007 forward. For the year 2009, productivity was revised downward to 1.6 percent due to a downward revision in output. In 2008 productivity was revised up 0.5 percentage point as output was revised by the same amount. In 2007 productivity was revised down to 0.6 percent from 1.0 percent as a downward revision to output combined with an upward revision to hours