Nonfarm business sector labor productivity increased 2.3 percent in the second quarter of 2021, the U.S. Bureau of Labor Statistics reported today, as output increased 7.9 percent and hours worked increased 5.5 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the second quarter of 2020 to the second quarter of 2021, nonfarm business sector labor productivity increased 1.9 percent.

Unit labor costs in the nonfarm business sector increased at an annual rate of 1.0 percent in the second quarter of 2021, the combined effect of a 3.3-percent increase in hourly compensation and a 2.3-percent increase in productivity. Unit labor costs increased 0.1 percent over the last four quarters, as hourly compensation increased 2.0 percent and productivity increased 1.9 percent. 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.

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 second quarter of 2021 is the fourth consecutive quarter with increases in both output and hours worked, following historic declines in those measures in the second quarter of 2020. Over those four quarters, nonfarm business sector output increased 15.8 percent and the index is now 1.2 percent above the level seen in the fourth quarter of 2019, the last quarter not affected by the COVID-19 pandemic. Hours worked increased 13.6 percent from the second quarter of 2020 to the second quarter of 2021; the hours worked index remains below its fourth quarter of 2019 level by 2.8 percent.

Manufacturing sector labor productivity increased 6.9 percent in the second quarter of 2021, as output increased 3.8 percent and hours worked decreased 2.9 percent. Although productivity also increased in both manufacturing subsectors, these gains reflected different underlying conditions. In the durable manufacturing sector, productivity increased 4.6 percent as a 1.4-percent decrease in output was outpaced by a 5.7-percent decrease in hours worked. In contrast, nondurable manufacturing sector productivity increased 7.8 percent as output (9.9 percent) grew faster than hours worked (2.0 percent). Manufacturing productivity increased 6.8 percent from the same quarter a year ago.

Unit labor costs in the total manufacturing sector decreased 1.9 percent in the second quarter of 2021, reflecting a 4.9-percent increase in hourly compensation and a 6.9-percent increase in productivity. Manufacturing unit labor costs decreased 5.8 percent from the same quarter a year ago.

Manufacturing sector output increased 16.5 percent over the last four quarters and is now just 0.8 percent below its level in the fourth quarter of 2019, the last quarter not affected by the COVID-19 pandemic. Hours worked in manufacturing declined in the second quarter of 2021, prolonging the recovery in that measure, which stands 5.0 percent below the fourth-quarter 2019 level.

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
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 July 29 by the Bureau of Economic Analysis, U.S. Department of Commerce. As a result, all measures incorporating output, including labor productivity and unit labor costs, were revised back to 1947 for the business, nonfarm business, and nonfinancial corporate sectors; prior to 1998, revisions were due primarily to revisions to output in the index base year of 2012, therefore revisions to percent changes are small. Quarterly and annual measures incorporating compensation were subject to revision back to 1999 for the business sectors, and back to 2016 for the manufacturing sectors and the nonfinancial corporate sector. Profits and related measures for the nonfinancial corporate sector were also revised beginning in 2016.

Quarterly measures of manufacturing output and all related measures--including labor productivity--were revised historically to incorporate revised monthly Indexes of Industrial Production (IIP) published by the Board of Governors of the Federal Reserve System on May 28, 2021. Annual manufacturing output measures for 1987 to 2019 were not revised; the annual average percent change for 2020 reflects changes in IIP.

Measures of hours worked for all sectors incorporate regular updates and corrections to source data for the first quarter of 2021. Hours worked and related measures for the business and nonfarm business sectors were revised back to 2014 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 2016 due to the incorporation of revised NIPA data on the proportion of industry compensation paid to employees of corporations.

Table B1 presents revised and previous labor productivity and related measures for the nonfarm business, business, and manufacturing sectors for the first quarter of 2021. Table A2 presents these measures for the nonfinancial corporate sector.

Nonfarm business sector productivity was revised down to an increase of 4.3 percent in the first quarter of 2021, as output was revised down slightly to an increase of 8.4 percent and hours worked increased 4.0 percent rather than increasing 3.0 percent as reported June 3. (See table B1.) A downward revision to first-quarter unit labor costs--from an increase of 1.7 percent to a decrease of 2.8 percent--reflected a large downward revision to hourly compensation that was partially offset by a smaller downward revision to productivity. Hourly compensation increased at a 1.4-percent annual rate in the first quarter of 2021, and real hourly compensation decreased 2.2 percent.

Manufacturing sector productivity was revised upward 0.4 percentage point to a decline of 1.3 percent in the first quarter of 2021, as output was revised up by more than hours worked. Productivity was revised down in the durable manufacturing subsector and up in the nondurable manufacturing subsector. In the first quarter of 2021, total manufacturing unit labor costs increased 1.9 percent rather than increasing 10.7 percent as reported June 3, reflecting both an 8.3-percentage point downward revision to hourly compensation and a 0.4-percentage point upward revision to productivity.

Nonfinancial corporate sector productivity grew 5.0 percent in the first quarter of 2021, slower than the previously published estimate of 5.8 percent, as a result of a 0.9-percentage point upward revision to hours worked and a 0.1-percentage point upward revision to output. Productivity in nonfinancial corporations increased 5.9 percent from the first quarter of 2020 to the first quarter of 2021. Unit labor costs in the nonfinancial corporate sector were revised down from a 0.8-percent increase to a decline of 4.8 percent in the first quarter of 2021, as a large downward revision to hourly compensation was partially offset by a downward revision to productivity. Unit labor costs increased 0.2 percent from the same quarter last year. Unit profits were revised up dramatically, and increased at a 30.0-percent annual rate in first-quarter 2021.

Annual averages
Table C1 presents annual data for the nonfarm business, total manufacturing, and nonfinancial corporate sectors from 2018 to 2020. Annual average percent changes compare average annual indexes from one year to the next.

Annual average productivity in the nonfarm business sector was revised down to a 2.4-percent increase in 2020, as output decreased 4.4 percent and hours worked decreased 6.6 percent. Productivity increased 2.0 percent in 2019 and 1.5 percent in 2018. The average annual rate of productivity growth from 2007 to 2019 --representing the previous business cycle--was unchanged at 1.4 percent. Unit labor costs were revised up 0.2 percentage point to an increase of 4.5 percent in 2020. The 7.0-percent increase in hourly compensation in 2020 was the largest annual gain since 2000, when the measure also increased 7.0 percent.

Annual average manufacturing sector productivity grew 0.3 percent in 2020, rather than decreasing 0.1 percent as previously reported. Output decreased 6.4 percent and hours worked decreased 6.6 percent in the manufacturing sector in 2020. Productivity decreased 1.4 percent in 2019 as previously reported. The average annual rate of manufacturing productivity growth from 2007 to 2019 was unchanged at 0.2 percent. The 6.5-percent increase in manufacturing unit labor costs in 2020 was the largest increase in the annual series which begins in 1987.

Annual average productivity in the nonfinancial corporate sector was revised up to a 2.2-percent increase in 2020, as output decreased 4.2 percent and hours worked decreased 6.3 percent. Productivity was revised up significantly in both 2019 and 2018, from a 0.7-percent increase to a 1.4-percent increase in 2019, and from a 0.6-percent increase to a 1.2-percent increase in 2018. (See tables C1 and 6.) The average annual rate of productivity growth in the nonfinancial corporate sector from 2007 to 2019 was revised up from 0.8 percent to 0.9 percent.