Posted by Joseph Y. Calhoun, III

Productivity rose 9.5% in the third quarter:

Nonfarm business sector labor productivity increased at a 9.5 percent
annual rate during the third quarter of 2009, the U.S. Bureau of Labor
Statistics reported today. This was the largest gain in productivity since
the third quarter of 2003, when it rose 9.7 percent. 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. Output increased 4.0 percent and hours worked
decreased 5.0 percent in the third quarter of 2009 (All quarterly percent
changes in this release are seasonally adjusted annual rates). 

From the third quarter of 2008 to the third quarter of 2009, nonfarm
business output fell 3.5 percent and hours worked fell faster, 7.5
percent, resulting in a productivity increase of 4.3 percent (tables A and 2).
The four-quarter decline in hours was the largest in the series, which
begins in 1948. Nonfarm business productivity rose 1.8 percent in 2008,
and 2.6 percent per year on average during the 2001-2007 period
corresponding to the last complete business cycle.

Unit labor costs in nonfarm businesses fell 5.2 percent in the third
quarter of 2009; the increase in productivity outpaced the increase in
hourly compensation. Unit labor costs declined 3.6 percent over the last
four quarters--the largest decrease since the series began in 1948 (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. 

Productivity increased 9.8 percent in the business sector in the third
quarter of 2009. This was the largest increase in the series since the
second quarter of 1972. Unit labor costs decreased 5.1 percent during the
third quarter of 2009 (tables A and 1).

Manufacturing sector productivity grew 13.6 percent in the third quarter
of 2009, as output increased 7.7 percent despite a 5.2 percent decrease in
hours worked.  This was the largest increase in the quarterly productivity
series, which begins in 1987. Over the last four quarters, manufacturing
productivity increased 3.1 percent as output and hours declined 10.8
percent and 13.5 percent respectively (tables A and 3). Manufacturing
sector productivity increased 0.8 percent in 2008, and at an average annual
rate of 4.0 percent from 2001 to 2007.

In the third quarter of 2009, changes in productivity, output, and hours
were larger in durable goods producing industries than in nondurable goods
industries (tables A, 4 and 5).

Manufacturing unit labor costs fell at a 7.1 percent annual rate in the
third quarter of 2009, but increased 2.3 percent over the last four
quarters (tables A and 3).