Productivity rises, but labor costs increase

The U.S. Department of Labor's Bureau of Labor Statistics today reported preliminary productivity data—as measured by output per hour of all persons—for the first quarter of 2005. Productivity increased 2.1 percent in the business sector and 2.6 percent in the nonfarm business sector. Labor costs also increased.

Productivity in the business sector grew more slowly than in the fourth quarter of 2004, when it increased 3.7 percent. In the nonfarm business sector, however, productivity increased more in the first quarter than it had in the previous quarter. Nonfarm business labor productivity increased 2.1 percent in the fourth quarter of 2004.

In manufacturing, productivity changes in the first quarter were: 3.9 percent in manufacturing; 6.3 percent in durable goods manufacturing; and 1.3 percent in nondurable goods manufacturing.

Productivity growth in manufacturing in the first quarter of 2005 reflected a 3.3 percent increase in output and a drop of 0.7 percent in hours worked in the sector.

Hourly compensation increased 4.3 percent during the first quarter of 2005. This measure includes wages and salaries, supplements, employer contributions to employee benefit plans, and taxes. Hourly compensation had risen 4.9 percent in the previous quarter. However, real hourly compensation, which takes into account changes in consumer prices, increased faster in the first quarter of 2005, 1.9 percent, than in the fourth quarter of 2004, when it rose 1.3 percent.

The hourly compensation of all manufacturing workers rose 4.9 percent during the first quarter, and real hourly compensation increased 2.5 percent. The 4.9 percent hourly compensation rise reflects a change of 5.3 percent in durable goods and 3.9 percent in nondurable goods.

Because the hourly compensation of manufacturing workers rose more rapidly than output per hour, unit labor costs increased in the first quarter, by 0.9 percent. This is similar to the 0.8 percent increase recorded in the fourth quarter of 2004. In durable goods manufacturing, however, unit labor costs fell in the first quarter of 2005, dropping 0.9 percent. All of the increase in manufacturing unit labor costs came from the nondurable goods subsector, where unit labor costs grew 2.6 percent.