U.S. labor productivity increased at 2.8% annual rate in first quarter

Non-farm business sector labor productivity increased at a 2.8 percent annual rate during the first quarter of 2010, the U.S. Department of Labor's Bureau of Labor Statistics reported on June 3, with output rising 4.0 percent and hours rising 1.1 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 3.0 percent while hours fell 3.0 percent, yielding an increase in productivity of 6.1 percent. This gain in productivity from the same quarter a year ago was the largest since output per hour increased 6.1 percent over the four-quarter period ending in the first quarter of 2002.

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. The measures released June 3 were based on more recent source data than were available for the preliminary report.

Unit labor costs in non-farm businesses fell 1.3 percent in the first quarter of 2010, as the 2.8 percent increase in productivity outpaced a 1.5 percent gain in hourly compensation. Unit labor costs fell 4.2 percent over the last four quarters, as the 6.1 percent increase in output per hour over that period outpaced a 1.6 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 1.5 percent in the first quarter of 2010, as output rose 7.2 percent and hours worked increased 5.6 percent. Gains in productivity, output, and hours were each larger in the durable goods sector than in the nondurable goods sector. Unit labor costs in manufacturing declined 1.5 percent in the first quarter of 2010 and fell 5.1 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.

Non-financial corporate sector productivity increased 4.2 percent in the first quarter of 2010 as output and hours rose 6.4 percent and 2.1 percent, respectively.

Revised measures
Table B of the report presents previous and revised productivity and related measures for the major sectors: business, non-farm business, and manufacturing, for the first quarter of 2010 and the fourth quarter of 2009.

In the first quarter of 2010, non-farm business productivity growth was revised down to 2.8 percent from the 3.6 percent preliminary estimate, reflecting a downward revision to output and an upward revision to hours. Unit labor costs fell 1.3 percent in the first quarter, a slightly smaller decline than reported May 6. In the manufacturing sector, productivity growth in the first quarter was revised down to 1.5 percent from 2.5 percent. Unit labor costs declined 1.5 percent rather than falling 3.7 percent as previously reported.

In the fourth quarter of 2009, non-farm business productivity was unrevised, while a 2.3 percentage point downward revision to hourly compensation resulted in a larger decline in unit labor costs (-7.8 percent) than was previously reported.  In the manufacturing sector, fourth-quarter productivity was unrevised, while an upward revision to hourly compensation slowed the rate of decline in unit labor costs to 4.2 percent.