Research >> Economics

1Q2020 Productivity Growth Decreased 0.9%


Nonfarm business sector labor productivity decreased 0.9 percent in the first quarter of 2020, the U.S. Bureau of Labor Statistics reported today, as output decreased 6.5 percent and hours worked decreased 5.6 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2019 to the first quarter of 2020, productivity increased 0.7 percent, reflecting no change in output and a 0.7-percent decrease in hours worked.

Unit labor costs in the nonfarm business sector increased 5.1 percent in the first quarter of 2020, as hourly compensation increased 4.2 percent and productivity decreased 0.9 percent. Unit labor costs increased 1.9 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 output per hour 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 0.9-percent decline in nonfarm business sector labor productivity in the first quarter of 2020 was only the second quarterly decline since the fourth quarter of 2015, when output per hour decreased 2.9 percent. The 6.5-percent first-quarter 2020 decrease in output was the largest since the first quarter of 2009, when output also fell 6.5 percent, and the 5.6-percent decline in hours worked was the largest since the second quarter of 2009 (-8.7 percent).

Manufacturing sector labor productivity increased 0.3 percent in the first quarter of 2020, as output decreased 6.3 percent and hours worked decreased 6.6 percent. Total manufacturing sector productivity declined 0.8 percent over the last four quarters, as output decreased 2.2 percent and hours worked decreased 1.4 percent. (See tables A1 and 3.) Productivity decreased 3.5 percent in the durable manufacturing sector in the first quarter of 2020, reflecting a 10.2-percent decrease in output and a 6.9-percent decrease in hours worked. Productivity increased 4.3 percent in the nondurable manufacturing sector, as output decreased 2.0 percent and hours worked decreased 6.1 percent. Unit labor costs in the total manufacturing sector increased 6.9 percent in the first quarter of 2020, and increased 4.4 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.

Preliminary first-quarter 2020 measures were announced today for the nonfinancial corporate sector. Productivity decreased 1.3 percent in the first quarter of 2020 as output decreased 5.0 percent and hours worked decreased 3.7 percent. Productivity increased 1.1 percent over the last four quarters. Unit profits of nonfinancial corporations decreased at a 43.3 percent annual rate in the first quarter of 2020 and decreased 8.4 percent over the last four quarters. (See table 6.) The 43.3-percent drop in unit profits in the first quarter of 2020 was the largest decline since the fourth quarter of 2001 (-46.7 percent).

Revised measures
Measures released today are based on more recent source data than were available for the preliminary report. Total hours worked are produced by combining data on employment and average weekly hours. For employees these data are primarily based on data from the Current Employment Statistics (CES) survey. The survey reference period for March predated many of the COVID-19-related job losses that occurred in the latter part of the month. In order to capture these job losses, adjustments were made to March employment based on DOL Employment and Training Administration weekly reports of the number of initial claims for unemployment insurance (UI) benefits. This approach was reflected in the preliminary estimates of first-quarter 2020 labor productivity. Revised measures for the first quarter use this same basic methodology to estimate employment, but also use April data from the CES to better account for job losses that occurred in late March, as well as to adjust average weekly hours of employees. Hours worked by self-employed and unpaid family workers are based on data from the Current Population Survey (CPS). These hours worked data for March were adjusted using April CPS data and UI claims data. Hours worked and related measures--including labor productivity--for all sectors for the first quarter of 2020 reflect these adjustments.

Table B1 presents previous and revised productivity and related measures for the business, nonfarm business, and manufacturing sectors for the first quarter of 2020.

In the first quarter of 2020, nonfarm business productivity decreased 0.9 percent, rather than 2.5 percent as reported May 7, due to a 0.3-percentage point downward revision to output and a 1.8-percentage point downward revision to hours worked. Unit labor costs increased 5.1 percent rather than increasing 4.8 percent as previously reported, reflecting a 2.0-percentage point upward revision to hourly compensation that was largely offset by a 1.6-percentage point upward revision to productivity. In the manufacturing sector, productivity was revised up from a decrease of 3.3 percent to an increase of 0.3 percent, due to a 0.8-percentage point upward revision to output and a 2.7-percentage point downward revision to hours worked. Unit labor costs increased 6.9 percent rather than the preliminary estimate of 3.6 percent, reflecting the upward revision to productivity and a 7.1-percentage point upward revision to hourly compensation.

Table B2 shows previous and revised productivity and related measures for the business, nonfarm business, manufacturing, and nonfinancial corporate sectors for the fourth quarter of 2019.

In the fourth quarter of 2019, labor productivity in the nonfarm business sector increased at the same 1.2-percent rate reported May 7. Hourly compensation was revised up from the previously reported increase of 2.1 percent to a 3.4-percent increase. As a result, unit labor costs increased 2.2 percent in the fourth quarter of 2019, rather than increasing 0.9 percent. Total manufacturing sector productivity decreased 0.8 percent in the fourth quarter of 2019, a slightly larger decrease than previously reported. Hourly compensation was revised up 2.8 percentage points to a 5.5-percent increase; this led to an upward revision to unit labor costs, which increased 6.3 percent rather than increasing 3.5 percent.

In the nonfinancial corporate sector, productivity rose 3.7 percent in the fourth quarter of 2019 rather than increasing 2.8 percent as previously reported, due solely to an upward revision to output. Annual average productivity in the nonfinancial corporate sector increased 1.9 percent in 2019, rather than the preliminary estimate of 1.8 percent.






Posted: June 4, 2020 Thursday 08:30 AM




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