Nonfarm business sector labor productivity increased 0.3 percent in the third quarter of 2022, the U.S. Bureau of Labor Statistics reported today, as output increased 2.8 percent and hours worked increased 2.4 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the same quarter a year ago, nonfarm business sector labor productivity decreased 1.4 percent, reflecting a 1.9-percent increase in output and a 3.4-percent increase in hours worked. The 1.4-percent four-quarter decline is the first instance of three consecutive declines in this measure since 1982.

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

Unit labor costs in the nonfarm business sector increased 3.5 percent in the third quarter of 2022, reflecting a 3.8-percent increase in hourly compensation and a 0.3-percent increase in productivity. Unit labor costs increased 6.1 percent over the last four quarters.

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New Methodology and Historical Revisions

Data in this release reflect a new methodology for estimating hours worked. Data in this release also reflect the 2022 Annual Update of the National Income and Product Accounts (NIPA) released by the Bureau of Economic Analysis of the U.S. Department of Commerce on September 29, 2022. See “Revised measures” section.
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BLS calculates 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 productivity tend to reduce them. Real hourly compensation, which takes into account consumer prices, declined 1.7 percent in the third quarter and declined 3.4 percent over the last four quarters--the largest four-quarter decline in the series, which begins in the first quarter of 1948.

Manufacturing sector labor productivity decreased 1.3 percent in the third quarter of 2022, as output increased 1.9 percent and hours worked increased 3.3 percent. In the durable manufacturing sector, productivity decreased 4.3 percent, with a 2.0-percent increase in output and a 6.6-percent increase in hours worked. Nondurable manufacturing sector productivity increased 4.0 percent, as output increased 1.8 percent and hours worked decreased 2.1 percent. Total manufacturing sector productivity decreased 0.6 percent from the same quarter a year ago.

Unit labor costs in the total manufacturing sector increased 3.8 percent in the third quarter of 2022, reflecting a 2.4-percent increase in hourly compensation and a 1.3-percent decrease in productivity. Manufacturing unit labor costs increased 4.3 percent from the same quarter a year ago.

The concepts, sources, and methods used for the manufacturing output series differ from those used in the business and nonfarm business output series; these output measures are not directly comparable. See the Technical Notes for a more detailed explanation.

Revised measures

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Improvements to the Measurement of Hours Worked

Measures of hours worked for all sectors reflect a change in methods, and are revised historically. The new methodology uses all-employee hours data from the BLS Current Employment Statistics (CES) survey as the main source of data. This is an improvement upon the prior methodology, which instead used the CES production and nonsupervisory employee hours data. Another improvement in methodology is the use of BLS Current Population Survey (CPS) data to adjust CES all-employee hours paid to account for hours worked but not paid, also known as off-the-clock hours. The data also now incorporate all-employee based hours-worked-to-hours-paid ratios from the National Compensation Survey, rather than production and nonsupervisory worker ratios.

The all-employee source data are available from March 2006 forward; therefore, these changes directly affect quarterly hours worked for productivity measures beginning in the second quarter of 2006, and annual hours worked beginning in 2007. Previously-published hours worked data have been linked to the new series, extending revisions to levels all the way back to 1947. As a result, all measures incorporating hours worked--including labor productivity--were revised back to 1947 for the business, nonfarm business, and nonfinancial corporate sectors and to 1987 for manufacturing and its subsectors. Revisions to quarterly percent changes prior to second quarter 2006 are small. For more information on the new hours worked methodology, see www.bls.gov/opub/mlr/2022/article/improving-estimates-of-hours-worked-for-us-productivity-measurement.htm.

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Measures of output for the business, nonfarm business, and nonfinancial corporate sectors, and measures of compensation for all sectors, incorporate revised National Income and Product Accounts (NIPA) data released on September 29, 2022, by the Bureau of Economic Analysis (BEA), U.S. Department of Commerce. As a result, all measures incorporating output, including labor productivity and unit labor costs, were revised back to 2017 for the business, nonfarm business, and nonfinancial corporate sectors. Quarterly and annual measures incorporating compensation were subject to revision back to first quarter 2017 for the business, nonfarm business, manufacturing and nonfinancial corporate sectors. Profits and related measures for the nonfinancial corporate sector were also revised beginning in 2017. Source data on output and compensation released by BEA on October 27, 2022, are reflected in data for the third quarter of 2022. Regular updates of source data on manufacturing output from the Board of Governors of the Federal Reserve System are reflected in data for the first and second quarters of 2022.

Hours worked and related measures for the business and nonfarm business sectors were also subject to revision back to 2017 due to revised NIPA data on government enterprises employment and on the proportion of industry compensation paid to employees of nonprofit institutions. Hours worked and related measures for the nonfinancial corporate sector were subject to revision back to 2017 due to the incorporation of revised NIPA data on the proportion of industry compensation paid to employees of corporations. Improved processing of CPS data had a small effect on hours worked by self-employed and unpaid family workers (for whom the CPS is the data source) and therefore on total hours worked, back to 2000.

Annualized quarterly growth rates of labor productivity, output, and hours worked in the nonfarm business sector were revised. In second-quarter 2020, a 1.9-percentage point upward revision to output coincided with a 2.2-percentage point downward revision to hours worked. The revised figures now stand at decreases of 35.0 percent and 44.9 percent in output and hours worked, respectively. As a result, labor productivity in the second quarter of 2020 was revised up from an increase of 10.3 percent to an increase of 17.9 percent. This is the second-largest increase in the series; there was an 18.0 percent increase in the fourth quarter of 1947.

In the third quarter of 2020, a 2.6-percentage point upward revision to quarter-to-quarter output growth was partially offset by a 1.0-percentage point upward revision to hours worked, and labor productivity was revised up 1.0 percentage point. Other notable revisions include a 2.0-percentage point upward revision to hours worked in the fourth quarter of 2021 which was mirrored by a 1.7-percentage point downward revision the following quarter; productivity was revised downward to an increase of 4.4 percent in fourth-quarter 2021 and upward to a decrease of 5.9 percent in first-quarter 2022.

Table B1 presents revised and previous labor productivity and related measures for the nonfarm business, business, and manufacturing sectors for the second quarter of 2022. Table A2 presents these measures for the nonfinancial corporate sector.

Nonfarm business sector productivity was not revised in the second quarter of 2022; a 0.2-percentage point upward revision to output was offset by a 0.2-percentage point upward revision to hours worked. (See table B1.) Second-quarter unit labor costs were revised down 1.3 percentage points to an increase of 8.9 percent, reflecting a 1.2-percentage point downward revision to hourly compensation. While hourly compensation increased 4.5 percent in the second quarter of 2022, real hourly compensation decreased 5.5 percent.

Manufacturing sector productivity was revised down 1.8 percentage points to an increase of 2.9 percent in the second quarter of 2022, reflecting a 0.4-percentage point downward revision to output and a 1.4-percentage point upward revision to hours worked. Productivity was revised down in both the durable and nondurable manufacturing subsectors. In the second quarter of 2022, total manufacturing unit labor costs decreased 0.7 percent rather than 0.2 percent as previously reported, reflecting a 2.3-percentage point downward revision to hourly compensation, which was partially offset by the 1.8-percentage point downward revision to productivity.

Nonfinancial corporate sector productivity declined 2.7 percent in the second quarter of 2022, rather than the previously published estimate of a 0.7-percent decline, as a result of a 1.7-percentage point downward revision to output and a 0.3-percentage point upward revision to hours worked. Productivity in nonfinancial corporations decreased 1.7 percent from the second quarter of 2021 to the second quarter of 2022. Unit labor costs in the nonfinancial corporate sector were revised up 0.9 percentage points to an increase of 7.5 percent in the second quarter of 2022, as a 2.0-percentage point downward revision to productivity outpaced a 1.2-percentage point downward revision to hourly compensation. (See table A2.) Unit labor costs increased 8.2 percent from the same quarter last year.

Annual averages
Table C1 presents annual data for the nonfarm business, total manufacturing, and nonfinancial corporate sectors from 2019 to 2021. Annual average percent changes compare average annual indexes from one year to the next.

Annual average productivity in the nonfarm business sector was revised up to a 2.4-percent increase in 2021, as output increased 7.8 percent and hours worked increased 5.3 percent. Unit labor costs were revised down 1.3 percentage points to an increase of 2.4 percent in 2021, reflecting the aforementioned upward revision to productivity and a 0.7-percentage point downward revision to hourly compensation. Revisions to productivity in the second quarter of 2020 contributed to an upward revision to the annual measure from 2.4 percent to 4.4 percent, the largest annual increase since 1992, when the measure increased 4.5 percent. Output was revised upward from a decline of 4.4 percent to a decline of 3.5 percent in 2020, while hours worked were revised downward from a 6.7 percent decline to a 7.6 percent decline. Hourly compensation in 2020 was revised up to an increase of 8.1 percent and is now the largest annual gain since 1981, when the measure increased 9.6 percent. Productivity increased 2.0 percent in 2019, little changed from the previous estimate of 2.1 percent.

Indexes of productivity for the nonfarm business sector were historically revised. The indexes diverge in the second quarter of 2020, reflecting the sharp upward revision to growth in that quarter. The average annual rate of productivity growth from fourth-quarter 2019 to second-quarter 2022 is 1.6 percent, which is larger than the previously published estimate of 0.6 percent. Through the third quarter of 2022, the average annual rate is 1.4 percent, which is the same as the rate of productivity growth over the previous business cycle, from 2007 to 2019.

Annual average manufacturing sector productivity was not revised in 2021, remaining at 2.6 percent. In 2020, productivity was revised upward to an increase of 0.8 percent due to a corresponding downward revision to hours worked. The average annual rate of manufacturing productivity growth from 2007 to 2019 was unchanged at 0.2 percent. The 6.1-percent increase in manufacturing unit labor costs in 2020, revised down from the previously-reported value of 6.8 percent, remains the largest increase in the annual series, which begins in 1988.

Annual average productivity in the nonfinancial corporate sector was revised down 1.4 percentage points to a 3.2-percent increase in 2021 due to a corresponding downward revision in output. Productivity was revised up in 2020 due primarily to a 1.1-percentage point downward revision to hours worked. (See tables C1 and 6.) The average annual rate of productivity growth in the nonfinancial corporate sector from 2007 to 2019, 1.1 percent, was not revised.

Complete quarterly and annual data series can be found on the Productivity and Costs home page:
www.bls.gov/lpc/#data