Labor Cost Per Unit of Output

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The following perspective is excerpted from a news release by the Bureau Of Labor Statistics. It enumerates the factors that comprise calculations for unit labor costs in manufacturing. It was released to the public on September 4, 2003:

"In the second quarter of 2003, productivity increased 3.7 percent in manufacturing, as output declined 2.4 percent and hours of all persons fell 5.9 percent (seasonally adjusted annual rates). In the durable goods sector, productivity grew 3.5 percent in the second quarter of 2003, as output fell 3.3 percent and hours dropped by 6.5 percent. In nondurable goods, output per hour rose 3.4 percent, as output decreased 1.7 percent and hours dropped 4.9 percent. The hourly compensation of all manufacturing workers increased 5.2 percent during the second quarter of 2003, reflecting a 4.9-percent rise in hourly compensation in durable goods industries and a 5.9-percent increase in the nondurable goods sector. Real hourly compensation in the total manufacturing sector advanced 4.6 percent in the second quarter, after increasing 2.4 percent one quarter earlier. Unit labor costs in manufacturing rose 1.5 percent in the second quarter of 2003, compared with a 2.2 percent increase in the first quarter. Unit labor costs rose 1.4 percent in durable goods and 2.4 percent in nondurable goods in the second quarter of 2003."

http://stats.bls.gov/news.release/prod2.nr0.htm

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The following is an excerpt from the Beige Book, a summary of economic conditions released eight times per year by the Federal Reserve Bank of Boston from material collected by all of the Federal Reserve Banks around the country. This edition was released on September 3, 2003:

"Labor markets remain slack across the nation, with few reports of occupational shortages. Employers in a number of districts indicate that wage increases, when they occur, are modest, but the rising cost of benefits--notably health insurance--has raised compensation costs. Although districts note price increases for natural gas, gasoline, insurance, tuition, semiconductors, and pharmaceuticals, most product prices are reported to be stable or lower, as businesses say they cannot pass along these or other cost increases to their customers. The dominant price pressures are downward according to reports from Boston, New York, and Chicago, notwithstanding a few manufacturing respondents in Boston and Chicago who indicate they have raised selected prices by small amounts; Dallas reports that manufacturing prices are falling. San Francisco cites "very little upward movement" in the prices of final goods and services, while Minneapolis reports that price increases are generally modest and manufacturers expect prices to remain level for the remainder of the year. Similarly, retailers in the Kansas City district expect little change in prices in coming months."

http://www.federalreserve.gov/FOMC/BeigeBook/2003/20030903/default.htm

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The following is excerpted from the Monetary Policy Report To Congress, which is periodically presented to the U.S. Congress by the Federal Reserve to give Congress a feel for the state of the economy. This report was released in March 2003. It discusses recent trends in productivity and employment, which affects the labor cost per unit of output:

"Labor productivity rose impressively in 2002. Output per hour in the nonfarm business sector increased an estimated 3 3 /4 percent from the fourth quarter of 2001 to the fourth quarter of 2002. Labor productivity typically suffers in an economic downturn as businesses reduce hours worked by proportionally less than the decline in output; conversely, productivity typically rebounds early in an expansion as labor is brought back toward fuller utilization. During the most recent downturn, however, productivity held up comparatively well, a performance that makes last year's surge all the more impressive. Indeed, productivity rose at an average annual rate of nearly 3 percent over the past two years, faster than the average pace of increase during the late 1990s. Very likely, the rapid pace of last year's productivity growth was due in part to the special circumstances that developed after the September 11 attacks. Businesses cut labor substantially in late 2001 and early 2002 amid widespread fear of a sharp decline in demand; when demand held up better than expected, businesses proved able to operate satisfactorily with their existing workforces. Moreover, the fact that this step-up in productivity was not reversed later in the year suggests that at least a portion of it is sustainable. The recent rapid growth in productivity may derive in part from ongoing improvements in the use of the vast amount of capital installed in earlier years, and it may also stem from organizational innovations induced by the weak profit environment. Indicators of hourly compensation sent mixed signals last year. The rise in the employment cost index (ECI) for hourly compensation in private nonfarm businesses, 3 1 /4 percent, was 1 percentage point lower than the increase in 2001. Compensation increases likely were damped last year by the soft labor market and expectations of lower consumer price inflation."

http://www.federalreserve.gov/pubs/bulletin/2003/0303lead.pdf

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