US productivity 3rd quarter 2008

PRODUCTIVITY AND COSTS
Third Quarter 2008, revised


The Bureau of Labor Statistics of the U.S. Department of Labor today
reported revised productivity data--as measured by output per hour of all
persons--for the third quarter of 2008. The seasonally adjusted annual rates
of productivity growth in the third quarter were:


1.5 percent in the business sector and
1.3 percent in the nonfarm business sector.


In both sectors, hours were revised down more than output, leading to
productivity increases which are 0.2 percentage point higher than in
preliminary estimates published November 6.


In manufacturing, revised productivity changes in the third quarter
were:
-2.7 percent in manufacturing,
2.9 percent in durable goods manufacturing, and
-10.2 percent in nondurable goods manufacturing.


In the manufacturing sector, productivity fell 1.7 percentage points
more than was reported on November 6, as a 2.0 percent downward revision to
output was partially offset by a 0.4 percent downward revision to hours.
Output and hours in manufacturing, which includes about 12 percent of U.S.
business sector employment, tend to vary more from quarter to quarter than
data for the aggregate business and nonfarm business sectors. Third-quarter
measures are summarized in table A and appear in detail in tables 1 through
5.
The data sources and methods used in the preparation of the
manufacturing series differ from those used in preparing the business and
nonfarm business series, and these measures are not directly comparable.
Output measures for business and nonfarm business are based on measures of
gross domestic product prepared by the Bureau of Economic Analysis of the
U.S. Department of Commerce. Quarterly output measures for manufacturing
reflect indexes of industrial production independently prepared by the Board
of Governors of the Federal Reserve System. See Technical Notes for further
information on data sources.


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Table A. Productivity and costs: Revised third-quarter 2008 measures
(Seasonally adjusted annual rates)
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Real
Hourly hourly Unit
Produc- compen- compen- labor
Sector tivity Output Hours sation sation costs
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Percent change from preceding quarter

Business 1.5 -1.7 -3.2 4.2 -2.4 2.6
Nonfarm business 1.3 -1.9 -3.1 4.1 -2.4 2.8
Manufacturing -2.7 -7.8 -5.3 4.7 -1.9 7.6
Durable 2.9 -5.8 -8.4 6.1 -0.6 3.1
Nondurable -10.2 -9.8 0.4 2.6 -3.8 14.3
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Percent change from same quarter a year ago

Business 1.9 0.2 -1.6 3.3 -1.8 1.4
Nonfarm business 2.1 0.3 -1.8 3.5 -1.6 1.4
Manufacturing 0.6 -3.2 -3.8 4.6 -0.6 4.0
Durable 1.8 -2.9 -4.6 5.0 -0.3 3.2
Nondurable -1.2 -3.6 -2.4 4.0 -1.2 5.3
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Business

Business sector productivity grew at a 1.5 percent annual rate during
the third quarter of 2008, less than the 1.9 percent rate of growth from the
third quarter of 2007 to the third quarter of 2008 and the 2.5 percent
average annual rate from 2000 to 2007. Productivity growth in the third
quarter was the result of hours worked falling faster than output. The hours
decline of 3.2 percent was the largest since the fourth quarter of 2001 (4.2
percent), and the output decline of 1.7 percent was the largest since the
third quarter of 2001 (3.1 percent).

Hourly compensation in the business sector increased 4.2 percent during
the third quarter of 2008, following a 1.2 percent increase in the second
quarter (seasonally adjusted annual rates). This series includes accrued
wages and salaries, supplements, employer contributions to employee benefit
plans, and taxes. Real hourly compensation fell 2.4 percent, the fourth
consecutive quarter in which it declined. This reflected the 6.7 percent
increase in consumer prices during the third quarter, the fastest growth
since a similar increase in the third quarter of 1990.

The revised 2.6 percent third quarter increase in unit labor costs
reverses the 2.4 percent decline in the second quarter. Unit labor costs
increased 1.4 percent over the past four quarters. The change in unit labor
costs approximates the change in hourly compensation less the change in
productivity. The implicit price deflator for the business sector, which
reflects changes in both unit labor costs and unit nonlabor payments, grew
4.5 percent in the third quarter of 2008. This was its fastest growth since
the first quarter of 1990 (4.6 percent).


Nonfarm business

Productivity in the nonfarm business sector rose at a 1.3 percent annual
rate in the third quarter of 2008, slower than the 2.1 percent rate over the
last four quarters, and slower than the trend rate of 2.5 percent per year
from 2000 to 2007. As revised, output fell 1.9 percent and hours fell 3.1
percent in the third quarter of 2008; the two measures had not declined as
quickly since the third quarter of 2001 and the first quarter of 2002,
respectively.

Hourly compensation in the nonfarm business sector rose 4.1 percent in
the third quarter of 2008. This rate is similar to trends in recent years;
hourly compensation grew between 3.6 percent and 4.1 percent each year since
2001. As in the business sector, real hourly compensation decreased 2.4
percent in nonfarm business during the third quarter, due to the increase in
consumer prices.

Nonfarm business unit labor costs increased 2.8 percent in the third
quarter of 2008. Over the last four quarters unit labor costs increased 1.4
percent. The implicit price deflator for the nonfarm business sector rose
4.9 percent in the third quarter, more than in any quarter since the third
quarter of 1982 (5.0 percent).


Manufacturing

Manufacturing output per hour fell 2.7 percent in the third quarter of
2008, as output fell 7.8 percent and hours fell 5.3 percent. This is the
largest quarterly decline in productivity in the entire series, going back to
the second quarter of 1987. The decline in output was the largest since the
first quarter of 1991, when output fell 8.0 percent. Third quarter 2008 saw
the second consecutive quarter of negative manufacturing productivity growth;
revised output per hour for the second quarter of 2008 fell 2.2 percent.

The third-quarter decline in manufacturing productivity was driven by a
10.2 percent decline in nondurable goods productivity; output per hour in
durable goods industries increased 2.9 percent. The quarterly drop in
nondurable goods productivity is the largest in the series. Nondurable goods
output fell by 9.8 percent, 2.8 percentage points more than reported on
November 6. In contrast to the large decline in output, hours in nondurable
manufacturing rose slightly during the quarter, 0.4 percent (table 5).

In durable goods industries, a 5.8 percent decline in output was
outpaced by an 8.4 percent drop in hours, yielding a productivity increase of
2.9 percent (table 4). The declines in output and hours in durable
manufacturing had not been as large since the fourth quarter of 2001, when
output fell 9.9 percent and hours dropped 14.5 percent. Complete historical
series can be found on the productivity and costs homepage:
http://www.bls.gov/lpc/#data.

The average hourly compensation of all manufacturing workers rose 4.7
percent in the third quarter of 2008, and increased more in the durable goods
sector, 6.1 percent, than in the nondurable goods sector, 2.6 percent. Real
hourly compensation for all manufacturing workers declined 1.9 percent in the
third quarter, following declines of 0.5 percent and 2.7 percent in the first
and second quarters of 2008.

Both the decrease in productivity and the increase in hourly
compensation contributed to a 7.6 percent increase in unit labor costs in
manufacturing during the third quarter--much higher than the 4.0 percent
increase over the last four quarters and the 0.3 percent rate from 2000 to
2007. Unit labor costs increased 3.1 percent in durable goods industries and
14.3 percent in nondurable goods industries during the third quarter.


Nonfinancial Corporations

Third-quarter 2008 measures of productivity and costs also were released
for nonfinancial corporations (tables B and 6). Output per all-employee hour
grew at a 4.9 percent annual rate, with output rising 1.8 percent and hours
of all employees falling 3.0 percent (seasonally adjusted annual rates).
Over the last four quarters nonfinancial corporate sector productivity
increased 3.5 percent. This sector includes all corporations doing business
in the United States, except those classified as depository institutions,
nondepository institutions, security and commodity brokers, insurance
carriers, regulated investment offices, small business investment offices,
and real estate investment trusts.


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Table B. Nonfinancial corporations: Third-quarter 2008 productivity and cost
measures
(Seasonally adjusted annual rates)
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Real
Hourly hourly Unit Implicit
Produc- compen- compen- labor Unit price
Period tivity Output Hours sation sation costs profits deflator
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Percent change from preceding quarter

2008 III 4.9 1.8 -3.0 5.0 -1.6 0.1 24.6 4.0
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Percent change from same quarter a year ago

2008 III 3.5 2.0 -1.4 4.0 -1.2 0.5 -6.7 0.2
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Hourly compensation increased 5.0 percent during the third quarter, but
when consumer prices are taken into account, real hourly compensation
declined 1.6 percent. Real hourly compensation declined 1.2 percent since
the third quarter of 2007.

Unit labor costs in the nonfinancial corporate sector remained steady,
increasing just 0.1 percent during the third quarter of 2008; unit nonlabor
costs increased 5.8 percent, and unit profits rose 24.6 percent (seasonally
adjusted annual rates). As a result of these movements, the implicit price
deflator for the output of nonfinancial corporations--which reflects a
weighted average of these three measures--rose 4.0 percent.


Revised Measures

Current and previous measures for second and third quarters of 2008 for
the business, nonfarm business, and manufacturing sectors are compared in
table C. In the third quarter, revised estimates of productivity growth in
the business and nonfarm business sectors are higher than those reported
November 6, as downward revisions to hours were larger than downward
revisions to output. Manufacturing productivity had a large downward
revision in the third quarter as the downward revision to output outweighed
the downward revision to hours.

Hourly compensation was revised down in all three sectors. In the
business and nonfarm business sectors unit labor costs rose 2.6 percent and
2.8 percent, respectively, in the third quarter. This is 0.8 percent lower
than previously reported, reflecting both the downward revision to hourly
compensation and the upward revision to productivity. Hourly compensation
was also revised down in manufacturing, but the large downward revision in
manufacturing productivity resulted in an upward revision to unit labor
costs.


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Table C. Previous and revised productivity and related measures:
Quarterly percent change at seasonally adjusted annual rate
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Real
Hourly hourly Unit
Produc- compen- compen- labor
Sector tivity Output Hours sation sation costs
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Third quarter 2008

Business:
Previous 1.3 -1.5 -2.8 4.7 -1.9 3.4
Revised 1.5 -1.7 -3.2 4.2 -2.4 2.6
Nonfarm business:
Previous 1.1 -1.7 -2.7 4.7 -1.9 3.6
Revised 1.3 -1.9 -3.1 4.1 -2.4 2.8
Manufacturing:
Previous -1.0 -5.8 -4.9 5.0 -1.6 6.1
Revised -2.7 -7.8 -5.3 4.7 -1.9 7.6
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Second quarter 2008

Business:
Previous 3.7 2.6 -1.0 3.8 -1.2 0.1
Revised 3.7 2.6 -1.0 1.2 -3.7 -2.4
Nonfarm business:
Previous 3.6 2.8 -0.8 3.5 -1.4 -0.1
Revised 3.6 2.8 -0.8 0.9 -3.9 -2.6
Manufacturing:
Previous -1.9 -3.4 -1.5 3.8 -1.2 5.8
Revised -2.2 -3.7 -1.5 2.2 -2.7 4.5
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There were also revisions to second quarter data for the business,
nonfarm business, and manufacturing sectors. Hourly compensation, real
hourly compensation, and unit labor costs were revised in all three of these
sectors to reflect new information on employee compensation published by the
Bureau of Economic Analysis of the U.S. Department of Commerce on November
25. Hourly compensation growth was revised down 2.6 percent in the business
and nonfarm business sectors, leading to similar downward revisions to real
hourly compensation and unit labor costs. Second-quarter increases in
manufacturing hourly compensation and unit labor costs were revised down to
2.2 percent and 4.5 percent, respectively.

Manufacturing output in the second quarter was revised due to revised
indexes of industrial production from the Board of Governors of the Federal
Reserve. The downward revision of 0.3 percentage point led to a similar
downward revision to manufacturing productivity.


Revised measures: Nonfinancial corporations

Measures for the nonfinancial corporate sector also were revised to
reflect updated information on output and employee compensation during
second-quarter 2008 (table D). Output and productivity were revised down by
0.9 percentage point, and hours declined at the same rate reported November
6. Hourly compensation growth was revised down by 1.4 percentage points, and
because hourly compensation was revised downward more than productivity, unit
labor costs fell faster than previously reported, at a rate of 5.0 percent.


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Table D. Nonfinancial corporations: Previous and revised productivity and
cost measures
Quarterly percent changes at seasonally adjusted annual rates
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Real
Hourly hourly Unit Implicit
Produc- compen- compen- labor Unit price
tivity Output Hours sation sation costs profits deflator
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Second quarter 2008


Previous 8.6 6.9 -1.6 3.7 -1.3 -4.6 -8.4 -3.9
Revised 7.7 6.0 -1.6 2.3 -2.6 -5.0 -7.7 -3.8
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Next release date


The next release of Productivity and Costs is scheduled for 8:30 AM EST,
Thursday, February 5, 2009. Preliminary fourth-quarter and annual 2008
measures for the business, nonfarm business, and manufacturing sectors will
be released at that time.


Scheduled release dates for productivity and costs measures for major
sectors of the U.S. economy in 2009 are:

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Reference period 2009 release date
2008:
Fourth quarter, Annual February 5
Fourth quarter, Annual (revised) March 5
2009:
First quarter May 7
First quarter (revised) June 4
Second quarter August 11
Second quarter (revised) September 2
Third quarter November 5
Third quarter (revised) December 3
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