U.S. labor productivity increased at 2.3% annual rate during third quarter

Non-farm business sector labor productivity increased at a 2.3 percent annual rate during the third quarter of 2010, the U.S. Department of Labor’s Bureau of Labor Statistics reported on December 1. Labor productivity is calculated by dividing an index of real output by an index of the combined hours worked of all persons, including employees, proprietors and unpaid family workers. Output increased 3.7 percent and hours worked increased 1.4 percent in the third quarter. (All quarterly percent changes in this release are seasonally adjusted annual rates.) Non-farm business productivity increased 2.5 percent from the third quarter of 2009 to the third quarter of 2010, as output increased 4.3 percent and hours worked rose 1.7 percent.

The productivity measures released December 1 are based on more recent and more complete data than were available for the preliminary report issued last month (see revised measures).

Unit labor costs in non-farm businesses decreased 0.1 percent in the third quarter of 2010, because productivity grew 2.3 percent while hourly compensation increased 2.2 percent. Over the last four quarters, unit labor costs declined 1.1 percent. 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.

Business sector productivity increased 2.5 percent in the third quarter of 2010, as output increased 3.7 percent and hours increased 1.2 percent. Over the last four quarters, business sector productivity increased 2.6 percent.

Manufacturing sector productivity rose 0.6 percent in the third quarter of 2010, as output and hours grew 4.2 percent and 3.6 percent, respectively. In the durable manufacturing subsector, output per hour declined 0.5 percent as output grew 6.0 percent but hours grew faster, 6.5 percent. In non-durable goods industries productivity increased 3.2 percent, due both to an increase in output and a decline in hours. Over the last four quarters, total manufacturing productivity increased 4.0 percent as output rose 7.1 percent and hours increased 3.0 percent. Manufacturing unit labor costs increased 1.0 percent in the third quarter of 2010, but fell 2.9 percent over the last four quarters.

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.

Preliminary third-quarter 2010 data for the nonfinancial corporate sector also were released on December 1. Output per hour fell 2.4 percent as output declined 0.2 percent and hours rose 2.3 percent. 

Revised measures
Measures for the second and third quarters of 2010 for all sectors reflect normal updates of source data including output, employment and hours. Additionally, manufacturing productivity, output, and unit labor costs series were revised back to 1987 to reflect revised output indexes constructed by BLS using data from the U.S. Department of Commerce.

In the non-farm business sector, third quarter productivity growth was revised up to 2.3 percent from a previous estimate of 1.9 percent, because the upward revision to output was greater than the upward revision to hours. Non-farm business productivity in the second quarter was not revised. Unit labor costs declined by the same amount in the third quarter as previously reported, 0.1 percent. However, second quarter unit labor costs were revised up substantially due to an upward revision to hourly compensation.

In the manufacturing sector, slight upward revisions to output resulted in similar upward revisions to productivity in both the third and second quarters of 2010. Upward revisions to hourly compensation affected unit labor costs. Third-quarter unit labor costs increased 1.0 percent rather than declining 0.3 percent. Second-quarter unit labor costs were revised to -0.7 percent from the preliminary estimate of -6.4 percent reported on November 4.