productivity change - as measured by output per hour of all persons - and revised changes for calendar year 2008.
Productivity growth for the fourth quarter of 2008 was revised down by 3.5 percentage points in the business sector and 3.6 percentage points in the nonfarm business sector from the estimates published February 5. In both sectors output was revised down by 3.2 percentage points and hours were revised up by 0.1 percentage point. Productivity growth during calendar year 2008 was not revised in either sector.
In the manufacturing sector, productivity fell 1.0 percentage point more than was reported Feb. 5, as a 1.0 percentage point downward revision to output was partially offset by a 0.1 percentage point downward revision to hours. Annual average growth in manufacturing productivity from 2007 to 2008 was revised up by 0.2 percentage point. 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. 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 prepared by the Board of Governors of the Federal Reserve System.
Business
Productivity in the business sector decreased 0.4 percent in the fourth quarter of 2008, as output decreased 8.4 percent and hours of all persons decreased 8.0 percent (seasonally adjusted annual rates). The declinein output was the largest since the first quarter of 1982 (-8.6 percent) and the decline in hours was the largest since the first quarter of 1975 (-12.1 percent). When the fourth quarter of 2008 is compared to the fourth quarter of 2007 output per hour increased 2.2 percent.
Hourly compensation grew at a 5.0 percent annual rate in the fourth quarter. This measure includes wages and salaries, supplements, employer contributions to employee-benefit plans, and taxes. Real hourly compensation increased 15.6 percent in the fourth quarter. This measure takes into account changes in consumer prices, which fell at a 9.2 percent annual rate in the fourth quarter.
Unit labor costs, which reflect changes in hourly compensation and productivity, increased 5.4 percent during the fourth quarter, after rising 3.3 percent in the third quarter. The implicit price deflator for business sector output edged down 0.1 percent in the fourth quarter of 2008, but increased 1.7 percent from the same quarter a year ago.
Nonfarm Business
In the nonfarm business sector, productivity decreased at an annual rate of 0.4 percent in the fourth quarter of 2008, as output decreased 8.7 percent and hours of all persons - employees, proprietors, and unpaid family workers - decreased 8.3 percent. As in the business sector, the decline in nonfarm business output was the largest since the first quarter of 1982 (-8.7 percent) and the decline in hours was the largest since the first quarter of 1975 (-12.0 percent). Productivity increased 2.2 percent during the last four quarters.
Hourly compensation grew 5.3 percent in the fourth quarter of 2008. Real hourly compensation rose steeply, 15.9 percent, when the 9.2 percent decrease in consumer prices was taken into account. This was the largest increase in the real hourly compensation series, which begins in the second quarter of 1947. As in the business sector, real hourly compensation rose 2.5 percent during the past four quarters.
Unit labor costs increased 5.7 percent in the fourth quarter and 1.8 percent over the last four quarters. The implicit price deflator for nonfarm business increased 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 4.0 percent, output dropped 17.7 percent, and hours fell 14.2 percent. These were the largest declines for each of 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 1.1 percent, output fell 8.0 percent and hours fell 6.9 percent.
In the durable goods manufacturing sector, productivity dropped 14.8 percent in the fourth quarter of 2008, as output fell 26.9 percent and hours declined 14.2 percent. These were the largest decreases in output and output per hour for the entire series beginning in the second quarter of 1987. In the nondurable goods sector, productivity rose 7.6 percent in the fourth quarter as hours fell faster than output; output declined 7.7 percent and hours fell 14.2 percent.
Hourly compensation of all manufacturing workers increased 10.1 percent during the fourth quarter of 2008, and after taking into account the 9.2 percent decrease in consumer prices, real hourly compensation in manufacturing rose a series-high 21.2 percent. Hourly compensation also rose 10.1 percent in durable and nondurable manufacturing; real hourly compensation increased 21.2 percent and 21.3 percent, respectively.
Unit labor costs in manufacturing increased 14.7 percent in the fourth quarter of 2008. These cost increases were concentrated in durable goods manufacturing where unit labor costs rose 29.1 percent; unit labor costs rose 2.3 percent in nondurable goods industries. Over the last four quarters manufacturing unit labor costs increased 6.8 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 gains were the largest since 2004, due more to declines in hours than the small gains in output, and were larger than the 2.5 percent average annual increase during the 2000-2007 period.
In 2008, hourly compensation increased 3.6 percent and 3.7 percent in the business and nonfarm business sectors, 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 0.9 percent in both the business and nonfarm business sectors during 2008, as hourly compensation growth was largely offset by productivity growth. Unit labor costs had increased 1.4 percent from 2000 to 2007 in both sectors.
Manufacturing
In the manufacturing sector, labor productivity rose 1.5 percent in 2008 as output fell 2.5 percent but hours fell faster, 3.9 percent. Durable manufacturing output per hour increased 1.6 percent as output fell 2.6 percent and hours fell 4.2 percent, while in nondurable goods industries productivity increased 1.0 percent, output fell 2.4 percent and hours fell 3.4 percent. Total manufacturing productivity had grown at a 3.7 percent average annual rate from 2000 to 2007.
Hourly compensation of manufacturing workers increased 4.0 percent in 2008, which is the same as the average annual rate of growth 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 0.2 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.
