U.S. productivity rose 3.6% annual rate in Q1

Non-farm business sector labor productivity increased at a 3.6 percent annual rate during the first quarter of 2010, the U.S. Department of Labor’s Bureau of Labor Statistics reported on May 6, with output rising 4.4 percent and hours worked rising 0.8 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2009 to the first quarter of 2010, output increased 3.1 percent while hours fell 3.0 percent, yielding an increase in productivity of 6.3 percent. This gain in productivity from the same quarter a year ago was the largest since output per hour increased 7.0 percent over the four-quarter period ending in the first quarter of 1962.

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 non-farm businesses fell 1.6 percent in the first quarter of 2010, as the 3.6 percent increase in productivity outpaced a 1.9 percent gain in hourly compensation. Unit labor costs fell 3.7 percent over the last four quarters, as the 6.3 percent increase in productivity outpaced a 2.3 percent rise 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.

Manufacturing sector productivity grew 2.5 percent in the first quarter of 2010, as output rose 7.5 percent and hours worked increased 4.9 percent, the first increase in hours since the second quarter of 2007. Gains in productivity, output, and hours were each larger in the durable goods sector than in the non-durable goods sector. Unit labor costs in manufacturing declined 3.7 percent in the first quarter of 2010 and fell 6.1 percent over the last four quarters. The four-quarter decline was the largest in the series, which begins in the first quarter of 1988.

The data sources and methods used in the preparation of the manufacturing output series differ from those used in preparing the business and non-farm business output series, and these measures are not directly comparable.

Fourth quarter and annual 2009 measures of productivity and costs were announced for the nonfinancial corporate sector. Output per employee hour rose 8.2 percent for the fourth quarter of 2009 as output and hours rose 8.5 percent and 0.3 percent, respectively.