Nonfarm business sector labor productivity increased at a 1.9 percent annual rate during the third quarter of 2010, the U.S. Bureau of Labor Statistics reported. 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. Output increased 3.0 percent and hours worked increased 1.1 percent in the third quarter. (All quarterly percent changes in this release are seasonally adjusted annual rates.) Productivity increased 2.5 percent over the last four quarters, as output rose 4.1 percent and hours worked rose 1.6 percent.

Unit labor costs in nonfarm businesses decreased 0.1 percent in the third quarter of 2010, because productivity grew 1.9 percent while hourly compensation increased 1.8 percent. From the third quarter of 2009 to the third quarter of 2010, unit labor costs declined 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.

Manufacturing sector productivity rose 0.4 percent in the third quarter of 2010, as output grew 4.0 percent and hours worked increased 3.6 percent. Over the last four quarters, manufacturing productivity increased 3.9 percent as output rose 7.0 percent and hours increased 3.0 percent. Productivity for the sector increased at a 6.3 percent annual rate during the five quarters of the current business cycle expansion, which began in the third quarter of 2009. This contrasts with the 1.3 percent productivity decline during the recent recession, as measured from the fourth quarter of 2007 through the second quarter of 2009.

In the third quarter of 2010, productivity declined 0.8 percent in the durable goods manufacturing sector as output grew more slowly than hours worked; productivity in nondurable goods industries increased 2.9 percent as output rose 2.2 percent while hours fell 0.7 percent.

Manufacturing unit labor costs fell 0.3 percent in the third quarter of 2010 and 4.6 percent from the same quarter a year ago. The four-quarter decline in unit labor costs reflects a 3.9 percent increase in productivity and a 0.9 percent decline in hourly compensation.

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.

Revised measures

Nonfarm business productivity for the second quarter of 2010 fell at the same 1.8 percent rate that was reported on September 2. Unit labor costs were revised up due to an upward revision in hourly compensation. In the manufacturing sector, productivity increased at an annual rate of 5.4 percent in the second quarter, rather than 4.1 percent as reported September 2. Manufacturing unit labor costs declined 6.4 percent in the second quarter.

In the nonfinancial corporate sector, revised data for the second quarter of 2010 show that productivity fell 1.6 percent, more than the 0.5 percent decline reported previously. After revision, unit labor costs increased 0.9 percent in the second quarter, following two quarters of large declines. Unit profits increased at a 21.7 percent annual rate in the second quarter of 2010.