U.S. labor productivity decreased 1.8% in second quarter

Non-farm business sector labor productivity decreased at a 1.8 percent annual rate during the second quarter of 2010, the U.S. Bureau of Labor Statistics reported September 2 as hours increased 3.5 percent and output increased 1.6 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) The second-quarter gain in hours worked was the largest since the first quarter of 2006. From the second quarter of 2009 to the second quarter of 2010, productivity and output both grew 3.7 percent and hours were unchanged. Non-farm business productivity increased at an average annual rate of 2.5 percent from 2000 through 2009.

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

Unit labor costs in non-farm businesses rose 1.1 percent in the second quarter of 2010, as the 1.8 percent decline in productivity was partially offset by a 0.7 percent decline in hourly compensation. Unit labor costs decreased 2.8 percent over the last four quarters, as output per hour increased faster than 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 4.1 percent in the second quarter of 2010, as output rose 8.4 percent and hours worked increased 4.1 percent. Productivity performance differed between the two manufacturing subsectors. In durable manufacturing, output per hour increased 9.9 percent as output grew 13.6 percent and hours rose 3.4 percent. In non-durable goods industries, productivity fell 2.4 percent as output grew 2.8 percent but hours grew 5.3 percent. Total manufacturing productivity increased 7.5 percent over the last four quarters and 3.0 percent per year on average from 2000 through 2009.

Unit labor costs in manufacturing declined 5.9 percent in the second quarter of 2010 due to both the 4.1 percent increase in productivity and a 2.0 percent decline in hourly compensation. Unit labor costs fell 7.3 percent over the last four quarters, the largest four-quarter decrease since the series began in 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.

Preliminary data for the second quarter of 2010 for the non-financial corporate sector also were released today. Productivity declined 0.5 percent as output and hours increased 4.0 percent and 4.5 percent, respectively.