Unit labor costs in nonfarm businesses declined 0.6 percent in the fourth quarter of 2010, as the increase in productivity (2.6 percent) outpaced the increase in hourly compensation (1.9 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. Over the last four quarters, unit labor costs declined 0.2 percent, as hourly compensation and productivity increased 1.5 percent and 1.7 percent, respectively. Annual average unit labor costs fell 1.5 percent from 2009 to 2010.
Manufacturing sector productivity grew 5.8 percent in the fourth quarter of 2010, as output rose 3.7 percent and hours worked declined 2.0 percent. From the fourth quarter of 2009 to the fourth quarter of 2010, manufacturing productivity increased 3.6 percent as output increased 6.4 percent and hours rose 2.7 percent. Unit labor costs in manufacturing fell 2.9 percent in the fourth quarter of 2010 and decreased 3.0 percent from the same quarter a year ago. Annual average productivity grew 6.0 percent from 2009 to 2010.
The data sources and methods used in the preparation of the manufacturing output series differ from those used in preparing the business and nonfarm business output series, and these measures are not directly comparable.
The nonfarm business sector experienced productivity growth of 3.6 percent from 2009 to 2010 and 3.5 percent from 2008 to 2009. However, the 2010 increase in output per hour was due to a 3.7 percent increase in output as hours edged up 0.1 percent, whereas the 2009 productivity gain resulted when output fell 3.8 percent and hours fell 7.0 percent. In both years, strong productivity growth in nonfarm business was accompanied by declines in unit labor costs. By contrast the previous three years (2006-2008) were marked by modest productivity gains and increases in unit labor costs of more than two percent.
In the manufacturing sector, productivity grew 6.0 percent in 2010, the largest annual increase in output per hour since 2003, when output per hour increased 6.3 percent. The 2010 productivity gain reflected a 6.6 percent increase in output combined with a 0.6 percent increase in hours. Productivity grew 8.2 percent in durable goods manufacturing and 3.5 percent in nondurable goods industries. Unit labor costs in the manufacturing sector fell 4.5 percent - the largest decline in annual manufacturing unit labor costs since the series began in 1988.
