Productivity and Costs on the Rise for First Quarter

Chart 1 (left), Output per hour, nonfarm business, all persons, 2005Q1 to 2010Q1; Chart 2, Unit labor costs, nonfarm business, all persons, 2005Q1 to 2010Q1. - Photo Courtesy of Bureau of Labor Statistics

Nonfarm business sector labor productivity increased at a 3.6 percent annual rate during the first quarter of 2010. Output rose 4.4 percent and hours worked increase 0.8 percent. (based on seasonally adjusted annual rates.) From the first quarter of 2009 to the first quarter of 2010, output increased 3.1 percent while hours fell 3.0 percent, yielding an increase in productivity of 6.3 percent.

This gain in productivity from the same quarter a year ago was the largest since output per hour increased 7 percent over the four-quarter period ending in the first quarter of 1962. Labor productivity or output per hour, is calculated by dividing an index of real output by an index of hours of all persons, including employees, proprietors, and unpaid family workers.

Unit labor costs in nonfarm businesses fell 1.6 percent in the first quarter of 2010, as the 3.6 percent increase in productivity outpaced a 1.9 percent gain in hourly compensation. Unit labor costs fell 3.7 percent over the last four quarters, as the 6.3 percent increase in productivity outpaced a 2.3 percent rise in hourly compensation (chart 2, tables A and 2). 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.

Manufacturing sector productivity grew 2.5 percent in the first quarter of 2010, as output rose 7.5 percent and hours worked increased 4.9 percent, the first increase in hours since the second quarter of 2007.

Gains in productivity, output and hours were each larger in the durable goods sector than in the nondurable goods sector. Since manufacturing drives the economy this is great news to landscape contractors and architects, as business should be picking up.

-- Courtesy of Bureau of Labor Statistics