Nonfarm business sector labor productivity increased 1.7 percent in the fourth quarter of 2022, the U.S. Bureau of Labor Statistics reported today, as output increased 3.1 percent and hours worked increased 1.4 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.)

This 1.7-percent increase in labor productivity for the fourth quarter of 2022 is 1.3 percentage points below the preliminary estimate of a 3.0-percent increase. From the same quarter a year ago, nonfarm business sector labor productivity decreased 1.8 percent, reflecting a 0.7-percent increase in output and a 2.6-percent increase in hours worked. (See table A1.) Annual average productivity decreased 1.7 percent from 2021 to 2022. This is the largest annual decline in the measure since 1974, when productivity also decreased 1.7 percent.

Unit labor costs in the nonfarm business sector increased 3.2 percent in the fourth quarter of 2022, reflecting a 4.9-percent increase in hourly compensation and a 1.7-percent increase in productivity. Unit labor costs increased 6.3 percent over the last four quarters.

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, increased 0.7 percent in the fourth quarter, and declined 2.4 percent over the last four quarters.

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. The fourth quarter of 2022 is the second consecutive quarter in which both output and labor productivity increased, following decreases in the first two quarters of the year. Labor productivity has grown at an annualized rate of 1.4 percent since the last business cycle peak in the fourth quarter of 2019--the last quarter before the COVID-19 pandemic and ensuing recession--reflecting a 2.1-percent rate of growth in output and a 0.7-percent rate of growth in hours worked over that three-year period.

Manufacturing sector labor productivity decreased 2.7 percent in the fourth quarter of 2022, as output decreased 3.0 percent and hours worked decreased 0.4 percent. In the durable manufacturing sector, productivity decreased 3.1 percent, with a 3.5-percent decrease in output and a 0.4-percent decrease in hours worked. Nondurable manufacturing sector productivity decreased 2.2 percent, as output decreased 2.5 percent and hours worked decreased 0.3 percent. Total manufacturing sector productivity decreased 1.9 percent from the same quarter a year ago.

Unit labor costs in the total manufacturing sector increased 7.7 percent in the fourth quarter of 2022, reflecting a 4.8-percent increase in hourly compensation and a 2.7-percent decrease in productivity. Manufacturing unit labor costs increased 6.3 percent from the same quarter a year ago.

Labor productivity in the manufacturing sector has grown at an annualized rate of 0.6 percent since the fourth quarter of 2019, reflecting a 0.8-percent rate of growth in output and a 0.2-percent rate of growth in hours worked.

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

Third quarter, fourth quarter, and annual average data for 2022 were revised to incorporate regular updates of source data on output and compensation published by the Department of Commerce on February 23, 2023. Quarterly measures of real hourly compensation in 2022 were revised to reflect updates to seasonally adjusted data from the BLS Consumer Price Index program released on February 14.

Quarterly and annual measures of hours worked, productivity, and related series were revised historically for all major sectors. From 2018 to 2022, the revisions reflect incorporation of revised BLS Current Employment Statistics (CES) program data for employment and hours of employees on nonfarm payrolls. Notable revisions in those data reflect upward revisions due to both the benchmarking of CES employment to the Quarterly Census of Employment and Wages in March 2022--which is wedged in over the prior 12 months--and the incorporation of actual business births and deaths during this period. From 1990 to 2022, revisions reflect reconstruction of employment for two industries by CES based on a correction to the coding of some establishments within these two industries. Revisions to employment and hours worked by all workers from 2018 to 2022 also reflect revised seasonal adjustment of hours worked by nonfarm proprietors and unpaid family workers, all farm workers, and employees of government enterprises. These measures, based on source data from the BLS Current Population Survey (CPS), are seasonally adjusted by the BLS Major Sector Productivity program. Because hours worked were revised for the index base year of 2012, all measures incorporating hours worked--including productivity--were subject to revision back to 1947.

Revised and previous measures for the fourth quarter of 2022 are shown in table B1 for the business, nonfarm business, and manufacturing sectors. In the fourth quarter of 2022, nonfarm business productivity increased 1.7 percent--a 1.3-percentage point downward revision from the preliminary estimate of a 3.0-percent increase. This reflects a 0.4-percentage point downward revision to output and a 0.9-percentage point upward revision to hours worked. Unit labor costs increased 3.2 percent rather than increasing 1.1 percent as previously reported, reflecting a 1.3-percentage point downward revision to productivity and a 0.8-percentage point upward revision to hourly compensation.

Manufacturing productivity decreased 2.7 percent in the fourth quarter of 2022 rather than decreasing 1.5 percent as reported on February 2. This reflects a 0.4-percentage point downward revision to output and a 0.7-percentage point upward revision to hours worked. A 1.6-percentage point upward revision to hourly compensation and the 1.2-percentage point downward revision to productivity both contributed to an upward revision to unit labor costs, which increased 7.7 percent rather than 4.8 percent as previously reported. Productivity was revised down by 1.4 percentage points and 0.8 percentage point in the durable and nondurable manufacturing sectors, respectively.

In the third quarter of 2022, nonfarm business productivity was revised down to an increase of 1.2 percent due to an upward revision in hours worked; output was not revised. Unit labor costs increased 6.9 percent rather than 2.0 percent as previously reported, reflecting a 4.8-percentage point upward revision to hourly compensation and the 0.2-percentage point downward revision to productivity. Total manufacturing sector productivity was revised down by 0.4 percentage point as durable manufacturing productivity was revised up by 0.3 percentage point and nondurable manufacturing productivity was revised down by 1.5 percentage points. In the total manufacturing sector, unit labor costs were revised up by 5.6 percentage points to an increase of 12.1 percent, reflecting upward revisions to unit labor costs in both the durable and nondurable manufacturing sectors.

Nonfinancial corporate sector productivity increased 0.6 percent in the third quarter of 2022 rather than decreasing 1.6 percent as previously reported, primarily reflecting a 2.4-percentage point upward revision to output. Unit labor costs were revised up by 1.8 percentage points to an increase of 7.1 percent.

Annual averages

Table C1 presents annual average changes for the most recent 5 years for the nonfarm business sector and the total manufacturing sector. Nonfarm business sector productivity decreased 1.7 percent in 2022, as the 4.0-percent increase in hours worked outpaced the 2.3-percent increase in output. The 1.7-percent decrease in labor productivity in 2022 is the largest annual decrease in the measure since 1974 when the measure decreased by the same amount. These are also the largest declines in the annual series, which begins in 1948.

Unit labor costs in the nonfarm business sector increased 6.5 percent in 2022, reflecting an increase of 4.7 percent in hourly compensation and a decrease of 1.7 percent in productivity. This is the largest annual increase in unit labor costs since 1982, when the measure increased 8.2 percent. Real hourly compensation, which takes into account changes in consumer prices, decreased 2.8 percent in 2022. This is the largest annual decline in real hourly compensation since the series began in 1948.

In the manufacturing sector, productivity decreased 1.0 percent in 2022, as an increase in output of 3.1 percent was outpaced by an increase in hours worked of 4.2 percent. The annual increase of 4.2 percent in hours worked is the largest increase in the series, which begins in 1988.

Manufacturing unit labor costs increased 5.2 percent in 2022, with hourly compensation increasing 4.1 percent. Real hourly compensation in the manufacturing sector decreased 3.3 percent in 2022, the largest decline since the series began in 1988.

Quarterly and annual data for all sectors from 2020 to 2022 appear in tables 1-6. Full historical measures can be found on the Productivity and Costs website: www.bls.gov/productivity/tables.