THIRD-TO-FOURTH QUARTER CHANGES, 2008
Business
Productivity in the business sector increased by 3.1 percent in the fourth quarter of 2008, reflecting a decrease of 5.2 percent in output and an even greater decline of 8.1 percent in hours of all persons (seasonally adjusted annual rates). The decline in output was the largest since the first quarter of 1982 (-8.6 percent) and the drop in hours was the largest since first quarter 1975 (-12.1 percent). When the fourth quarter of 2008 is compared to the fourth quarter of 2007, business sector productivity grew 2.7 percent, as output and hours fell 1.0 percent and 3.6 percent, respectively. Business sector productivity had grown at a 2.5 percent average annual rate for the 2000-2007 period.
Hourly compensation grew 4.7 percent in the fourth quarter of 2008, up from a 4.2 percent increase one quarter earlier. This measure includes wages and salaries, supplements, employer contributions to employee-benefit plans, and taxes. Real hourly compensation takes into account changes in consumer prices, which fell at a 9.2 percent annual rate in the fourth quarter. The 15.3 percent fourth-quarter increase in real hourly compensation was the largest since the first quarter of 1950 when it increased 16.1 percent. When the fourth quarter of 2008 is compared to the fourth quarter of 2007, real hourly compensation increased 1.9 percent.
Unit labor costs, which relate hourly compensation to output per hour, increased 1.5 percent in the fourth quarter of 2008, as most of the 4.7 percent increase in hourly compensation was offset by the 3.1 percent productivity gain.
Nonfarm Business
In the nonfarm business sector, productivity rose 3.2 percent in the fourth quarter of 2008, as output decreased 5.5 percent and hours of all persons - employees, proprietors, and unpaid family workers - fell more, 8.4 percent (seasonally adjusted annual rates). As in the business sector, the declines in output and hours were the largest since the first quarter of 1982 for output (-8.7 percent) and the first quarter of 1975 for hours (-12.0 percent). During the four-quarter period ending with the fourth quarter of 2008, nonfarm business sector productivity grew 2.7 percent--similar to the 2.5 percent average rate of growth from 2000 to 2007.
Hourly compensation in the nonfarm business sector rose 5.0 percent in the fourth quarter of 2008 following a 4.2 percent increase in the third quarter. When the 9.2 percent decrease in consumer prices was factored in, real hourly compensation jumped 15.6 percent during the fourth quarter (seasonally adjusted annual rates). This was the largest increase in real hourly compensation since the beginning of the series in the second quarter of 1947. However, real hourly compensation had declined in each of the first three quarters of 2008, and as in the business sector, the change from the same quarter a year ago was 1.9 percent.
Unit labor costs rose 1.8 percent in the fourth quarter of 2008, and 0.7 percent over the last four quarters. As in the business sector, unit labor costs increased at a 1.4 percent average annual rate from 2000 to 2007. The implicit price deflator for nonfarm business output declined 0.5 percent in the fourth quarter after increasing 4.7 percent in the previous quarter.
Manufacturing
Manufacturing productivity, output, and hours all declined in the fourth quarter of 2008; output per hour fell 3.0 percent, output dropped 16.7 percent, and hours fell 14.1 percent (seasonally adjusted annual rates). The decreases in hours and output were the largest for these series, which begin with data for the second quarter of 1987. From the fourth quarter of 2007 to the fourth quarter of 2008 manufacturing productivity decreased 1.4 percent, output fell 7.7 percent and hours declined 6.5 percent. Manufacturing productivity had grown at a 3.7 percent average annual rate from 2000 to 2007.
In the durable goods manufacturing sector, productivity dropped 13.4 percent in the fourth quarter of 2008, as output fell 26.1 percent and hours declined 14.7 percent. These were the largest decreases in output per hour, hours and output for the entire series dating back to second-quarter 1987. In the nondurable goods sector, productivity rose 7.6 percent in the fourth quarter as hours fell faster than output; output declined 6.5 percent and hours dropped 13.1 percent.
Hourly compensation of all manufacturing workers increased 9.8 percent during the fourth quarter of 2008, reflecting increases of 10.1 percent in durable goods industries and 9.6 percent in nondurable goods industries. When the decrease in consumer prices was taken into account, real hourly compensation in total manufacturing increased 20.9 percent in the fourth quarter, which was the largest increase in the series.
Unit labor costs for the manufacturing sector rose 13.3 percent in fourth-quarter 2008. These cost increases were concentrated in durable goods manufacturing where unit labor costs rose 27.1 percent; unit labor costs rose 1.8 percent in nondurable goods industries. Over the last four quarters manufacturing unit labor costs increased 6.6 percent.
ANNUAL AVERAGE CHANGES, 2007-2008
Business and Nonfarm Business
When annual averages for 2008 were compared with annual averages for 2007, labor productivity increased 2.7 percent in the business sector and 2.8 percent in the nonfarm business sector. In both sectors, the productivity increases were the largest since similar gains in 2004, due more to the declines in hours than the small gains in output
In 2008, hourly compensation increased 3.3 percent and 3.4 percent in business and nonfarm business, respectively. Because consumer prices increased more, 3.8 percent, real hourly compensation fell slightly. The annual decline in this measure of purchasing power was the first since small declines occurred in three consecutive years--1993, 1994, and 1995.
Unit labor costs rose just 0.6 percent and 0.5 percent in the business and nonfarm business sectors in 2008, as hourly compensation growth was largely offset by productivity growth. Unit labor costs had increased 2.7 percent per year on average from 2005 to 2007.
Manufacturing
In the manufacturing sector, labor productivity rose 1.3 percent in 2008 as output fell 2.4 percent but hours fell faster, 3.7 percent. Over the year there was little difference between the durable and nondurable manufacturing subsectors. Durable manufacturing output per hour increased 1.4 percent as output fell 2.5 percent and hours fell 3.9 percent, while in nondurable goods industries productivity increased 1.0 percent, output fell 2.4 percent, and hours fell 3.4 percent.
Hourly compensation of manufacturing workers increased 3.9 percent in 2008, consistent with the trend rate of 4.0 percent per year from 2000 to 2007. The gain in hourly compensation was offset by the 3.8 percent increase in consumer prices, and real hourly compensation edged up 0.1 percent. Unit labor costs in manufacturing increased 2.5 percent in 2008, as hourly compensation increased more than productivity. These costs had increased at a 0.3 percent average annual rate from 2000 to 2007.
Revised Measures
In the manufacturing sector, productivity fell 0.6 percentage points faster in the third quarter than previously reported, as a downward revision to output was partially offset by a downward revision to hours. As revised, manufacturing productivity decreased 3.3 percent, reflecting an 8.8 percent decrease in output and a 5.7 percent decrease in hours. Unit labor costs increased more in the third quarter than reported Dec. 3, reflecting both the downward revision to productivity and a small upward revision to hourly compensation.
