Nonfarm business sector labor productivity increased at a 6.6 percent annual rate during the second quarter of 2009, the U.S. Bureau of Labor Statistics reported.

This was the largest productivity increase since the third quarter of 2003, and reflects declines of 1.5 percent in output and 7.6 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the second quarter of 2008 to the second quarter of 2009, output fell 5.5 percent while hours fell 7.2 percent, yielding an increase in productivity of 1.9 percent. Nonfarm business productivity increased at an annual rate of 2.5 percent from 2000 through 2008.

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

Unit labor costs in nonfarm businesses fell 5.9 percent in the second quarter of 2009, with the decline due entirely to the increase in productivity; hourly compensation increased slightly. Unit labor costs declined 1.2 percent over the last four quarters, as a 1.9 percent
increase in output per hour was partially offset by a 0.7 percent increase in hourly compensation.

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.

Productivity increased 6.5 percent in the business sector in the second quarter of 2009. Unit labor costs decreased 6.0 percent during the second quarter of 2009.

Manufacturing sector productivity grew 4.9 percent in the second quarter of 2009, as output fell 9.8 percent and hours worked decreased 14.0 percent; declines in output and hours were much larger in durable goods industries than in nondurable goods industries.

The productivity gain in the manufacturing sector was the largest since the first quarter of 2005. Unit labor costs in manufacturing edged up 0.2 percent in the second quarter of 2009 and increased 6.7 percent over the last four quarters.

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

In the second quarter of 2009, nonfarm business productivity was revised up by 0.2 percentage point from the estimate published on August 11, reflecting a 0.2 percentage point upward revision to output; hours were not revised. Unit labor costs were revised down by 0.1 percentage point in the second quarter. In the manufacturing sector, productivity was revised down by 0.4 percentage point in the second quarter.

In the first quarter of 2009, nonfarm business productivity was not revised. Unit labor costs fell 5.0 percent rather than decreasing 2.7
percent as previously reported, due to a 2.3 percent downward revision to hourly compensation. In the manufacturing sector, first quarter productivity was unrevised. Unit labor costs were revised down by 2.6 percentage points.