Productivity Measurement Analysis series – United States, Q3 2024 by Martin Fleming.
General Summary and Main Figures
U.S. nonfarm business sector labour productivity increased at a seasonally adjusted annual rate (SAAR) of 2.2% in the third quarter of 2024, the U.S. Bureau of Labor Statistics (BLS) reported on 7 November.
The 7 November release included preliminary third quarter data and the 2024 annual update of the National Income and Product Accounts (NIPA) released by the Bureau of Economic Analysis on 26 September. In the revision, annual output growth increased an average of 0.4 percentage points (ppt) in the 2021 to 2023 period while labour input growth increased an average of 0.1 ppt, resulting in a slight upward revision to productivity growth.
In the third quarter, nonfarm business sector output increased 3.5% and hours worked increased 1.2%, both quarter-over-quarter (QoQ) at a SAAR. From the same quarter a year ago, nonfarm business sector labour productivity increased 2.0%, down from a 2.4% second quarter increase and a 2.8% first quarter increase.
Unit labour costs in the nonfarm business sector rose at a 1.9% SAAR in the third quarter, reflecting a 4.2% increase in hourly compensation and a 2.2% increase in productivity. Unit labour costs increased 3.4% over the last four quarters.
U.S. Productivity and Costs
Third Quarter 2024, Preliminary
|
Sector |
Quarter-on-year ago comparison, SAAR (Q3 2023) | Quarter-on-quarter comparison (Q2
2024) |
Pre-COVID-19 comparison, SAAR (Q4 2019) |
| Nonfarm Business | |||
| Labour Productivity | 2.0% | 2.2% | 1.8% |
| Unit Labour Cost | 3.4% | 1.9% | 3.5% |
| Manufacturing | |||
| Labour Productivity | 0.7% | 1.0% | 0.3% |
| Unit Labour Cost | 5.7% | 5.3% | 4.5% |
| Nonfinancial Corporate* | |||
| Labour Productivity | 4.2% | 3.1% | 2.4% |
| Unit Labour Cost | 1.8% | 1.3% | 3.2% |
*Q2 2024 most recent data. Comparison with Q2 2023, Q1 2024, and Q4 2019.
Manufacturing sector labour productivity rose 1.0% SAAR in the third quarter of 2024, as output declined 0.2% and hours worked fell 1.2%, all QoQ at SAAR. Unit labour costs in the manufacturing sector increased 5.3%, reflecting a 6.4% increase in hourly compensation and a 1.0% increase in productivity. Manufacturing unit labour costs increased 5.7% from the same quarter a year ago.
For the second quarter, manufacturing sector productivity was revised down substantially. The current estimate is a 0.3% SAAR increase in manufacturing sector productivity but revised down from a 1.3% estimate on 5 September. In the third quarter, manufacturing sector productivity was 0.7% above the year ago level with an annual average growth of 0.3% over the 19 quarters since the fourth quarter of 2019 prior to the onset of the COVID-19 pandemic. Over the same 19 quarter period, unit labour costs rose at annual average rate of 4.5%.
In the second quarter, productivity growth in the nonfinancial corporate sector rose 3.1% SAAR from the first quarter and 4.2% from the same 2023 quarter. The second quarter 3.1% increase resulted from a 4.7% SAAR output increase and a 1.5% increase in hours worked. On a year-over-year basis, a 5.0% increase in output and a 0.8% increase in labour input resulted in the 4.2% labor productivity increase.
The recent annual revisions reported a substantial upward correction in nonfinancial corporate sector output growth with a commensurate increase in productivity growth. Growth in hours worked changed only marginally. The prior estimates reported output growth of 2.5% SAAR in Q1 2024 and 1.4% SAAR in Q2 2024. The revised estimates are now a 6.4% SAAR output increase in Q1 2024 and 4.7% SAAR increase in Q2 2024. As a result, productivity growth in Q2 2024 was revised from a 0.3% decline to a 3.1% increase. In Q12024, productivity growth in Q2 2024 was revised from a 1.9% increase to a 5.7% increase.
Conversely, nonfinancial corporate sector output growth in 2023 was revised down to 1.5% from a prior estimate of 2.8%. Productivity growth was revised down from 1.4% to no growth in 2023.
Insights into the Q3 2024 Productivity Release
After a weak Q1 2024 U.S. nonfarm business sector productivity growth, the 2024 second and third quarter increases returns year-over-year growth to 2.2% which is also the year-over-year productivity growth in the second and third quarters of 2023. Over the two-year period from mid-2022 to mid 2024, output growth has been approximately 3.0% with labour input growing at approximately 1.0%.
The manufacturing sector continues to deliver disappointing results. Output, hours worked, and productivity are virtually unchanged since mid 2022 while unit labour costs have increased at an annual rate of more than 5.6% over the two-year period.
The recent revisions now report strong growth in the nonfinancial corporate sector. From the first half of 2023 to the first half of 2024 output grew 4.3%. By contrast, output growth over the same period across the much broader nonfarm business sector was 3.1%.
Discussion
After weak Q1 2024, U.S. nonfarm business sector productivity growth has returned to 2.0%. Growth over the most recent six quarters has exceeded the pandemic period average. Since the onset of the global pandemic, nonfarm business sector productivity has grown at an annual rate of 1.8%. Likewise, recent productivity growth has been above the 1.5% annual growth rate of the 2008 to 2019 period – the post great recession and global financial crisis period. Nonetheless, growth remains below the 2.8% annual growth rate realized in the 2001 to 2007 period.
In the nonfinancial corporate sector, since the onset of the global pandemic, productivity has grown at an annual rate of 2.4%. Similar to the nonfarm business sector, recent productivity growth has been above the 1.3% annual growth rate of the 2008 to 2019 period. However, growth remains slightly below the 2.6% growth realized in the 2001 to 2007 period. With the most recent data revisions, productivity and output growth in the nonfinancial corporate sector is somewhat stronger and more robust than the balance of the U.S. economy.
Historically, productivity growth has been pro-cyclical, so the recent 2023 – 2024 improvement could reflect efficiency gains as manufacturers and service providers return operating scale to prior levels.
Early technology applications, such generative AI, are likely making a marginal contribution to productivity gains, as are the enormous number of workers who have changed jobs over the past three years. It’s possible long run technology-driven productivity gains are beginning. However, much work and innovation remain ahead.
Despite economy-wide gains, the manufacturing sector continues to stagnate with productivity, output, and hours work remaining virtually unchanged over the most recent two years. Indeed, the level of productivity has been declining since its peak level reached in early 2011. In the third quarter, productivity in the U.S. manufacturing sector was 5.6% below the 2011 peak.
