The Bureau of Labor Statistics has announced that during the third quarter of 2009 labor productivity rose sharply:
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).
This is another way of saying that businesses are laying off employees with only a small reduction in output. That doesn’t bode well for future unemployment figures or suggest that we’ll see robust job growth any time soon.