Blog Post

Productivity Rises 2.3% in 2Q 2019; Unit Labor Costs Rise 2.4% (Annual Rates)

Nonfarm business sector labor productivity increased 2.3% in the second quarter of 2019, the U.S. Bureau of Labor Statistics reported today, as output increased 1.9% and hours worked decreased 0.4%. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the second quarter of 2018 to the second quarter of 2019, productivity increased 1.8%, reflecting a 2.6% increase in output and a 0.8% increase in hours worked. (See chart 1 and table A1.)

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers.

Unit labor costs in the nonfarm business sector increased 2.4% in the second quarter of 2019, and increased 2.5% over the last four quarters. (See chart 2 and table 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 output per hour tend to reduce them.

Manufacturing sector labor productivity decreased 1.6 percent in the second quarter of 2019, as output decreased 2.1% and hours worked declined 0.5%. Productivity declined 0.9 percent in the durable manufacturing sector, reflecting a 1.8% decrease in output and a 0.9% decrease in hours worked. Productivity decreased 2.6% in the nondurable manufacturing sector as output fell 2.4% and hours worked rose 0.3%. Over the last four quarters, total manufacturing sector productivity increased 0.2%, as output increased 0.4 percent and hours worked increased 0.2%. Unit labor costs in the manufacturing sector increased 5.8 percent in the second quarter of 2019, and increased 4.3% from the same quarter a year ago. (See tables A1 and 3.)

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. (See page 6.)

Revised first-quarter 2019 measures were announced today for the nonfinancial corporate sector. Productivity increased 1.5% in the first quarter of 2019 and increased 1.1% over the last four quarters. Unit labor costs increased 7.2% in the first quarter of 2019 and 1.4% from the same quarter last year. Unit profits of nonfinancial corporations fell at a 33.6% annual rate in the first quarter of 2019 and decreased 5.9% over the last four quarters. (See tables A2 and 6.)

Revised Measures

Measures of output for the business, nonfarm business, and nonfinancial corporate sectors, and measures of compensation for all sectors incorporate revised National Income and Product Accounts (NIPA) data for first-quarter 2014 through first-quarter 2019 released on July 26 by the Bureau of Economic Analysis (BEA), U.S. Department of Commerce. As a result, all measures incorporating output and compensation were revised, including labor productivity and unit labor costs. Current dollar output and the implicit price deflators for the business and nonfarm business sectors were also subject to further revisions back to 1947 due to rounding. Measures of output for the manufacturing sectors incorporate regular updates of source data for the first quarter of 2019 and the fourth quarter of 2018.

Measures of hours worked for all sectors incorporate regular updates of source data for the first quarter of 2019. Hours worked and related measures were revised back to 2003 for all sectors due to incorporation of revised ratios of supervisory and nonproduction worker average weekly hours to production and non-supervisory worker average weekly hours. Hours worked and related measures were revised back to 2010 for the business and nonfarm business sectors due to revised NIPA data on government enterprises employment and on the proportion of sector compensation paid to employees of nonprofit institutions. Hours worked and related measures were revised back to 2000 for the nonfinancial corporate sector due to the incorporation of revised NIPA data on the proportion of sector compensation paid to employees of corporations. Because hours worked were revised for the index base year of 2012, all measures incorporating hours worked — including productivity — were subject to revision back to 1947; resulting revisions to percent changes are small.

Table B1 presents revised and previous labor productivity and related measures for the nonfarm business, business, and manufacturing sectors for the first quarter of 2019; table C1 presents annual data for the nonfarm business, total manufacturing, and nonfinancial corporate sectors from 2016 to 2018.

Nonfarm business sector productivity increased 3.5% in the first quarter of 2019 — similar to the previously reported estimate (3.4%) — reflecting a 0.1% point downward revision to hours worked. (See table B1.) A large upward revision to first-quarter unit labor costs — from a decrease of 1.6% to an increase of 5.5% — reflected a 7.4% point upward revision to hourly compensation and a 0.1% point upward revision to productivity. (See chart 2.) Hourly compensation increased at a 9.2-percent annual rate in the first quarter of 2019, and real hourly compensation increased 8.3% — the largest quarterly gain since the fourth quarter of 2008 (14.3%).

Annual average productivity increased 1.3% in the nonfarm business sector in 2018 and 2017, and increased 0.3% in 2016. The average annual rate of productivity growth from 2007 to 2018 —representing the current business cycle — was unchanged at 1.3%. Unit labor costs increased 1.8% in the nonfarm business sector in 2018, rather than increasing 1.2%, due to a 0.5% point upward revision to hourly compensation. Unit labor costs were revised down by 0.1 percentage point in both 2017 and 2016. (See table C1.)

Manufacturing sector productivity was revised up and increased 1.1% in the first quarter of 2019, as output declined less, and hours worked declined more, than previously reported. Productivity was also revised up in both the durable and nondurable manufacturing subsectors. In the first quarter of 2019, total manufacturing unit labor costs increased 6.8% rather than increasing 2.0% as reported June 6, as a 5.6 percentage point upward revision to hourly compensation was partially offset by a 0.7-percentage point upward revision to productivity. (See table B1.) Total manufacturing real hourly compensation increased 7.1% in first-quarter 2019 — the largest increase since the second quarter of 2009 (8.0%).

Annual average manufacturing productivity grew 0.7% in 2018, slightly less than previously reported, and was unrevised in 2017 and 2016. The average annual rate of manufacturing productivity growth from 2007 to 2018 also was unrevised at 0.7%. An upward revision to unit labor costs of 0.6 percentage point in 2018 reflected a similar upward revision to hourly compensation. Revisions to 2017 and 2016 unit labor costs were small. (See tables C1, 3, 4, and 5.)

Nonfinancial corporate sector productivity growth was revised up in the first quarter of 2019, to an increase of 1.5%, rather than the previously published decline of 0.4%. This revision was due solely to a 1.9-percentage point upward revision to output; hours worked were unrevised. Unit labor costs in the nonfinancial corporate sector were revised to an increase of 7.2% from a preliminary estimate of 2.0%, as a large upward revision to hourly compensation was partially offset by an upward revision to productivity. (See table A2.) Unit profits were revised downward for the first quarter of 2019, and fell 33.6% rather than falling 17.9% as previously reported. (See table 6.)

Historical revisions to nonfinancial corporate sector productivity due to the Annual Update of the NIPA were larger than for other major sectors. Fourth-quarter 2018 productivity growth was unrevised at 1.4% as a downward revision to output was offset by a downward revision to hours, but productivity was revised down along with output in each of the previous six quarters. (See tables A2 and 6.). Chart 3 displays previous and revised indexes of productivity for the nonfinancial corporate sector, and shows that the 2016 forward period was most affected.
Annual average productivity in the nonfinancial corporate sector was revised downward in each of the last three years: from a 2.0% increase to a 0.2% decline in 2018; from a 1.7% increase to a 0.3% increase in 2017; and from no change to a decline of 1.1% in 2016. (See tables C1 and 6.) The average annual rate of productivity growth in the nonfinancial corporate sector from 2015 to 2018 was revised down from a 1.2% increase to a decline of 0.3%. The revisions to productivity were due primarily to downward revisions to profits, which are a component of output for this sector. Over the same 2015-2018 period profits were revised from a 2.0% increase to a 2.1% decrease.

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Table A1. Labor productivity growth and related measures - preliminary second-quarter 2019
(percent change from previous quarter at annual rate and from same quarter a year ago)


                                                Labor                   Hours    Hourly         Real hourly    Unit labor
Sector                  Percent change from:    productivity   Output   worked   compensation   compensation   costs
-------------------------------------------------------------------------------------------------------------------------
Nonfarm business        Previous quarter           2.3          1.9     -0.4        4.8             1.8          2.4
                        A year ago                 1.8          2.6      0.8        4.3             2.5          2.5
                        
Business                Previous quarter           2.6          2.1     -0.5        5.0             2.0          2.3
                        A year ago                 1.8          2.7      0.9        4.3             2.4          2.5
                        
Manufacturing           Previous quarter          -1.6         -2.1     -0.5        4.1             1.1          5.8
                        A Year ago                 0.2          0.4      0.2        4.5             2.6          4.3
 Durable
 manufacturing          Previous quarter          -0.9         -1.8     -0.9        4.5             1.5          5.5
                        A year ago                 0.7          1.4      0.7        4.4             2.5          3.6
 Nondurable
 manufacturing          Previous quarter          -2.6         -2.4      0.3        3.5             0.5          6.3
                        A year ago                -0.1         -0.7     -0.6        4.5             2.6          4.6
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Table A2. Labor productivity growth and related measures - revised and previously published first-quarter 2019
(percent change from previous quarter at annual rate)


                                                Labor                   Hours    Hourly         Real hourly    Unit labor
Sector                                          productivity   Output   worked   compensation   compensation   costs
-------------------------------------------------------------------------------------------------------------------------       
Nonfinancial             Revised                   1.5          3.5      2.0        8.9             7.9          7.2
corporate          Previously published           -0.4          1.6      2.0        1.6             0.7          2.0
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Table B1. Labor productivity growth and related measures - revised and previously published first-quarter 2019
(percent change from previous quarter at annual rate)


                                                Labor                   Hours    Hourly         Real hourly    Unit labor
Sector                                          productivity   Output   worked   compensation   compensation   costs
-------------------------------------------------------------------------------------------------------------------------
Nonfarm business         Revised                   3.5          3.9      0.4        9.2             8.3          5.5
                   Previously published            3.4          3.9      0.5        1.8             0.9         -1.6
                        
Business                 Revised                   3.6          3.9      0.3        9.3             8.4          5.5
                   Previously published            3.5          3.9      0.4        1.9             1.0         -1.5
                        
Manufacturing            Revised                   1.1         -1.8     -2.9        8.0             7.1          6.8
                   Previously published            0.4         -2.0     -2.4        2.4             1.5          2.0

 Durable                 Revised                   0.1         -2.7     -2.8        8.4             7.5          8.4
 manufacturing     Previously published           -0.6         -2.8     -2.2        2.1             1.1          2.7
                        
 Nondurable              Revised                   2.4         -0.8     -3.2        7.3             6.3          4.7
 manufacturing     Previously published            1.6         -1.1     -2.6        3.1             2.2          1.5
=========================================================================================================================


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Table C1. Labor productivity growth and related measures - revised and previous annual average changes: 2016-2018


                                                Labor                   Hours    Hourly         Real hourly    Unit labor
Sector           Year                           productivity   Output   worked   compensation   compensation   costs
-------------------------------------------------------------------------------------------------------------------------
Nonfarm          2018           Revised            1.3          3.5      2.1        3.1             0.7          1.8
business                 Previously published      1.3          3.5      2.1        2.6             0.2          1.2
                         
                                
                 2017           Revised            1.3          2.9      1.5        3.5             1.3          2.1
                         Previously published      1.2          2.7      1.5        3.4             1.2          2.2
                         

                 2016           Revised            0.3          1.7      1.4        1.1            -0.2          0.8
                         Previously published      0.2          1.6      1.4        1.1            -0.2          0.9
                         
                                
Manufacturing    2018           Revised            0.7          2.7      1.9        2.2            -0.3          1.4
                         Previously published      0.8          2.7      1.9        1.6            -0.8          0.8
                         
                        
                 2017           Revised            1.2          2.2      1.0        3.5             1.3          2.3
                         Previously published      1.2          2.2      1.0        3.3             1.2          2.1
                         

                 2016           Revised           -0.1         -0.1      0.0        0.5            -0.7          0.6
                         Previously published     -0.1         -0.1      0.0        0.6            -0.7          0.7
                         
                               
Nonfinancial     2018           Revised           -0.2          1.9      2.1        3.2             0.8          3.4
corporate                Previously published      2.0          4.1      2.1        2.1            -0.4          0.1
                         

                 2017          Revised             0.3          2.0      1.7        3.3             1.1          3.0
                        Previously published       1.7          3.4      1.7        3.2             1.0          1.5
                        
                        
                 2016           Revised           -1.1          0.3      1.4        1.1            -0.2          2.3
                         Previously published      0.0          1.5      1.5        1.1            -0.2          1.0
=========================================================================================================================

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