US Labor Productivity Drops by 2.1% in Q1 2023, Unit Labor Costs Increase by 4.2%, and Manufacturing Sector Sees a 2.5% Decrease in Productivity

June 14, 2023

Nonfarm business sector labor productivity decreased 2.1 percent in the first quarter of 2023, the U.S. Bureau of Labor Statistics reported today, as output increased 0.5 percent and hours worked increased 2.6 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) Labor productivity was revised up 0.6 percentage point, the combined effect of a 0.3-percentage point upward revision to output and a 0.4-percentage point downward revision to hours worked. From the same quarter a year ago, nonfarm business sector labor productivity decreased 0.8 percent, reflecting a 1.4- percent increase in output and a 2.2-percent increase in hours worked. The 0.8-percent productivity decline is the first time the four-quarter change series has remained negative for five consecutive quarters; this series begins in the first quarter of 1948.

Unit labor costs in the nonfarm business sector increased 4.2 percent in the first quarter of 2023, reflecting a 2.1-percent increase in hourly compensation and a 2.1-percent decrease in productivity. Unit labor costs increased 3.8 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 productivity tend to reduce them. Real hourly compensation, which takes into account consumer prices, decreased 1.7 percent in the first quarter of 2023, and declined 2.6 percent over the last four quarters.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all workers, including employees, proprietors, and unpaid family workers. During the current business cycle, starting in the fourth quarter of 2019, labor productivity has grown at an annualized rate of 1.1 percent, reflecting a 1.9-percent rate of growth in output and a 0.8-percent rate of growth in hours worked during the business cycle. The 1.1-percent rate of productivity growth in the current business cycle thus far is a historically low productivity growth rate; no other previous business cycle had lower productivity growth, except for the brief six-quarter cycle from first-quarter 1980 to third-quarter 1981, which exhibited 1.0 percent growth.

Manufacturing sector labor productivity decreased 2.5 percent in the first quarter of 2023, as output decreased 1.0 percent and hours worked increased 1.6 percent. In the durable manufacturing sector, productivity decreased 5.6 percent, with a 3.2-percent decrease in output and a 2.5-percent increase in hours worked. Nondurable manufacturing sector productivity increased 1.3 percent, as output increased 1.4 percent and hours worked were unchanged. Total manufacturing sector productivity decreased 1.6 percent from the same quarter a year ago.

Unit labor costs in the total manufacturing sector increased 3.1 percent in the first quarter of 2023, reflecting a 0.5-percent increase in hourly compensation and a 2.5-percent decrease in productivity. Manufacturing unit labor costs increased 4.5 percent from the same quarter a year ago.

Manufacturing sector labor productivity has declined at an annualized rate of 0.1 percent during the current business cycle, which began in the fourth quarter of 2019. This rate reflects output and hours worked growing at annualized rates of 0.2 percent and 0.3 percent, respectively, over the same period. This is a historically low productivity growth rate and follows the 0.0-percent annual rate of the last business cycle from fourth-quarter 2007 through fourth-quarter 2019.

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 2023 measures were announced today for the nonfinancial corporate sector. Productivity decreased 4.3 percent in the first quarter of 2023 as output decreased 1.9 percent and hours worked increased 2.5 percent. Productivity decreased 2.2 percent over the last four quarters.

Source: U.S. Bureau of Labor Statistics
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