BLS Reports Dip in Labor Productivity in Q3

Figure 1 shows labor productivity in output per hour as an index based on 2012 = 100 and the quarterly change for nonfarm businesses in total. 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 BLS reported that nonfarm business sector labor productivity decreased 0.3 percent in the third quarter of 2019, as output increased 2.1 percent and hours worked increased 2.4 percent. From the second quarter of 2018 to the second quarter of 2019, productivity increased 0.014. Prior to this latest data, there was a slight upward trend in productivity since the beginning of 2016.

The manufacturing component of the big picture had a poor productivity performance in the second and third quarters of 2019 (Figure 2). Manufacturing sector labor productivity declined 0.1 percent in the third quarter as output increased 1.1 percent and hours worked increased 1.3 percent. Total manufacturing sector productivity also declined 0.1 percent over the last four quarters, as output decreased 0.5 percent and hours worked decreased 0.4 percent. Productivity increased 1.2 percent in the durable manufacturing sector in the third quarter of 2019, reflecting a 2.4 percent increase in output and a 1.2 percent increase in hours worked.

Unit labor costs in the nonfarm business sector increased 3.1 percent in the third quarter (Figure 3). The 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.

Unit labor costs in the manufacturing sector increased 3.6 percent in the third quarter compared to an increase of 4.9 percent in the same quarter a year ago.