PRODUCTIVITY AND COSTS First Quarter 2007, Revised

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PRODUCTIVITY AND COSTS
First Quarter 2007, Revised


The Bureau of Labor Statistics of the U.S. Department of Labor today
reported revised productivity data--as measured by output per hour of all
persons--for the first quarter of 2007. The revised seasonally adjusted
annual rates of productivity change in the first quarter were:

0.5 percent in the business sector and
1.0 percent in the nonfarm business sector.

In both sectors, the first-quarter productivity gains were smaller than the
preliminary estimates reported on May 3, due to downward revisions to output
growth.

In manufacturing, the revised productivity changes in the first quarter
were:

2.4 percent in manufacturing,
2.2 percent in durable goods manufacturing, and
1.8 percent in nondurable goods manufacturing.

Manufacturing productivity growth was slower in the first quarter of
2007 than reported on May 3, reflecting downward revisions to output per hour
in both durable goods and nondurable goods industries. Output and hours in
manufacturing, which includes about 12 percent of U.S. business-sector
employment, tend to vary more from quarter to quarter than data for the
aggregate business and nonfarm business sectors. First-quarter measures are
summarized in table A and appear in detail in tables 1 through 5.

The data sources and methods used in the preparation of the
manufacturing series differ from those used in preparing the business and
nonfarm business series, and these measures are not directly comparable.
Output measures for business and nonfarm business are based on measures of
gross domestic product prepared by the Bureau of Economic Analysis of the
U.S. Department of Commerce. Quarterly output measures for manufacturing
reflect indexes of industrial production prepared by the Board of Governors
of the Federal Reserve System. See Technical Notes for further information
on data sources.


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Table A. Productivity and costs: Revised first-quarter 2007 measures
(Seasonally adjusted annual rates)
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Real
Hourly hourly Unit
Produc- compen- compen- labor
Sector tivity Output Hours sation sation costs
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Percent change from preceding quarter

Business 0.5 0.4 -0.1 2.5 -1.4 1.9
Nonfarm business 1.0 0.6 -0.4 2.8 -1.0 1.8
Manufacturing 2.4 1.2 -1.1 6.9 3.0 4.5
Durable 2.2 -0.4 -2.5 8.5 4.5 6.2
Nondurable 1.8 3.1 1.3 4.3 0.4 2.4
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Percent change from same quarter a year ago

Business 0.7 2.0 1.3 3.0 0.5 2.2
Nonfarm business 1.0 2.0 1.1 3.2 0.7 2.2
Manufacturing 3.5 2.4 -1.1 3.1 0.6 -0.4
Durable 4.8 3.2 -1.5 4.2 1.7 -0.5
Nondurable 1.8 1.4 -0.3 1.0 -1.4 -0.7
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Business

Productivity rose 0.5 percent in the business sector from the fourth
quarter of 2006 to the first quarter of 2007, as output increased 0.4 percent
and hours worked by all persons declined 0.1 percent (seasonally adjusted
annual rates). In the fourth quarter of 2006, output per hour increased 1.5
percent, reflecting increases in output and hours of 2.9 percent and 1.4
percent, respectively (table 1). From first-quarter 2006 to first-quarter
2007, business sector productivity posted the smallest four-quarter gain
since the fourth quarter of 1995, when it also rose 0.7 percent.

Hourly compensation increased at a 2.5 percent annual rate in the first
quarter of 2007. For the fourth quarter of 2006, hourly compensation growth
was revised up to 10.4 percent from the 7.7-percent increase reported May 3.
This measure of compensation includes wages and salaries, supplements,
employer contributions to employee benefit plans, and taxes. Real hourly
compensation, which takes into account changes in consumer prices, declined
1.4 percent in the first quarter of 2007 following a 12.8-percent gain in the
previous quarter.

The change in unit labor costs approximates the change in hourly
compensation less the change in productivity, and in the first quarter of
2007 there was a 1.9-percent rise in these costs. Unit labor costs grew 8.8
percent per year in the fourth quarter of 2006, as revised. The implicit
price deflator for business output, which reflects changes in both unit labor
costs and unit nonlabor payments, grew by 3.7 percent in the first quarter of
2007.


Nonfarm business

Productivity increased 1.0 percent in the nonfarm business sector during
the first quarter of 2007, as output rose 0.6 percent and hours of all
persons fell 0.4 percent (seasonally-adjusted annual rates). The decline in
nonfarm business hours worked was the first since 2003, when hours fell 2.1
percent in the first quarter and 1.3 percent in the second quarter. In
fourth-quarter 2006, nonfarm productivity had increased 2.1 percent as output
increased 2.9 percent and hours rose 0.8 percent (table 2). The 1.0-percent
increase in output per hour since the first quarter of 2006 is small compared
to recent movements. Nonfarm business productivity had increased at an
average annual rate of 3.1 percent from 2000 through 2005.

Hourly compensation increased 2.8 percent in the nonfarm business sector
in the first quarter of 2007. This measure had increased 11.2 percent in the
fourth quarter of 2006, as revised. When the rise in consumer prices is
taken into account, real hourly compensation grew 13.6 percent in the fourth
quarter of 2006, then declined 1.0 percent in the first quarter of 2007.

Unit labor costs rose 1.8 percent during the first quarter of 2007,
following an 8.9-percent increase in the fourth quarter of 2006, as revised.
The implicit price deflator for nonfarm business output rose by 3.2 percent
in the first quarter of 2007.


Manufacturing

Productivity grew at a 2.4-percent annual rate in the manufacturing
sector during the first quarter of 2007, the joint effect of a 1.2-percent
increase in output and a 1.1-percent decrease in hours. The 2.2-percent
productivity gain in durable goods industries in the first quarter was due
entirely to a 2.5-percent drop in hours worked, as output also declined, by
0.4 percent. Output per hour rose 1.8 percent in nondurable goods industries
as output and hours both increased, by 3.1 percent and 1.3 percent,
respectively (tables 3, 4, and 5).

Hourly compensation in manufacturing grew 6.9 percent during the first
quarter of 2007, following a gain of 11.8 percent one quarter earlier, as
revised. Hourly compensation rose 8.5 percent in durable goods industries
and 4.3 percent in nondurable goods industries. Real hourly compensation,
which takes into account changes in consumer prices, increased 3.0 percent
for all manufacturing workers, as a 4.5-percent rise in durable manufacturing
real hourly compensation combined with a 0.4-percent rise in the nondurable
goods industries.

Unit labor costs rose 4.5 percent in manufacturing during the first
quarter of 2007. In durable goods industries, where hourly compensation
increased much faster than productivity, unit labor costs increased 6.2
percent. In nondurable goods industries, unit labor costs rose 2.4 percent
during the first quarter of 2007, but when the first quarter of 2007 is
compared to the first quarter of 2006 nondurable manufacturing unit labor
costs declined 0.7 percent.


Nonfinancial corporations

Preliminary first-quarter 2007 measures of productivity and costs for
nonfinancial corporations also were announced today (tables B and 6).
Productivity rose 0.6 percent in the first quarter, as output increased 0.7
percent and employee-hours edged up 0.1 percent (seasonally adjusted annual
rates). The 0.3-percent increase in output per hour from the first quarter
of 2006 to the first quarter of 2007 was the smallest gain since a similar
increase from the fourth quarter of 1992 to the fourth quarter of 1993. The
nonfinancial corporate sector includes all corporations doing business in the
United States, except those classified as depository institutions,
nondepository institutions, security and commodity brokers, insurance
carriers, regulated investment offices, small business investment offices,
and real estate investment trusts.