Nonfarm business sector labor productivity increased at a 2.6% annual rate during the fourth quarter of 2010, the U.S. Bureau of Labor Statistics reported. This gain in productivity reflects increases of 4.5% in output and 1.8% in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) Productivity increased 1.7% over the last four quarters. Annual average productivity increased 3.6% from 2009 to 2010. Quarterly measures provide information on business cycles whereas annual measures are compared to long-term trends.
Labor productivity is calculated by dividing an index of real output by an index of the combined hours worked of all persons, including employees, proprietors, and unpaid family workers.
Unit labor costs in nonfarm businesses declined 0.6% in the fourth quarter of 2010, as the increase in productivity (2.6%) outpaced the increase in hourly compensation (1.9%). BLS defines 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. Over the last four quarters, unit labor costs declined 0.2%, as hourly compensation and productivity increased 1.5% and 1.7%, respectively. Annual average unit labor costs fell 1.5% from 2009 to 2010.
Manufacturing sector productivity grew 5.8% in the fourth quarter of 2010, as output rose 3.7% and hours worked declined 2.0%. From the fourth quarter of 2009 to the fourth quarter of 2010, manufacturing productivity increased 3.6% as output increased 6.4% and hours rose 2.7%. Unit labor costs in manufacturing fell 2.9% in the fourth quarter of 2010 and decreased 3.0% from the same quarter a year ago. Annual average productivity grew 6.0% from 2009 to 2010.
The nonfarmbusiness sector experienced productivity growth of 3.6% from 2009 to 2010 and 3.5% from 2008 to 2009. However, the 2010 increase in output per hour was due to a 3.7% increase in output as hours edged up 0.1%, whereas the 2009 productivity gain resulted when output fell 3.8% and hours fell 7.0%. In both years, strong productivity growth in nonfarm business was accompanied by declines in unit labor costs. By contrast the previous three years (2006-2008) were marked by modest productivity gains and increases in unit labor costs of more than 2%.
In the manufacturing sector, productivity grew 6.0% in 2010, the largest annual increase in output per hour since 2003, when output per hour increased 6.3%. The 2010 productivity gain reflected a 6.6% increase in output combined with a 0.6% increase in hours. Productivity grew 8.2% in durable goods manufacturing and 3.5% in nondurable goods industries. Unit labor costs in the manufacturing sector fell 4.5% — the largest decline in annual manufacturing unit labor costs since the series began in 1988.