Nonfarm business sector labor productivity increased at a 2.6 percent annual rate during the fourth quarter of 2010, the U.S. Bureau of Labor Statistics reported. The gain in productivity reflects a 4.0 percent increase in output and a 1.4 percent increase in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the fourth quarter of 2009 to the fourth quarter of 2010, productivity increased 1.9 percent as output rose faster than hours. Annual average productivity increased 3.9 percent from 2009 to 2010.

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. The measures were based on more recent source data than were available for the preliminary report.

Unit labor costs in nonfarm businesses fell 0.6 percent in the fourth quarter of 2010, due to productivity increasing faster than hourly compensation. Unit labor costs edged down 0.1 percent from the same quarter a year ago. The annual average index of unit labor costs declined 1.5 percent from 2009 to 2010.

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.

Manufacturing sector productivity rose 5.9 percent in the fourth quarter of 2010, as output increased 4.4 percent and hours decreased 1.4 percent. Over the last four quarters, manufacturing productivity increased 4.2 percent as output increased faster than hours worked. Unit labor costs in manufacturing declined at a 2.7 percent annual rate in the fourth quarter of 2010 and decreased by 2.7 percent over the last four quarters. Annual average productivity grew 6.7 percent from 2009 to 2010.

The data sources and methods used in the preparation of the manufacturing output series differ from those used in preparing the business and nonfarm business output series, and these measures are not directly comparable.

Revised measures

In the fourth quarter of 2010, changes in nonfarm business productivity and unit labor costs were unrevised; underlying output and hours growth were both revised downward. In manufacturing, productivity was revised up to 5.9 percent reflecting an upward revision to output and a smaller decline in hours than previously reported.

In the third quarter of 2010, nonfarm business productivity growth was revised down to 2.3 percent; unit labor costs rose 0.1 percent rather than declining 0.1 percent as reported February 3. In manufacturing, productivity growth was revised down slightly to 1.3 percent. An upward revision in unit labor costs to 1.1 percent was due primarily to an upward revision to hourly compensation. In the nonfinancial corporate sector productivity fell less than previously reported, the result of an upward revision in output.

Annual Average measures of hours, hourly compensation, and productivity were revised for 2009 and 2010, as a result of the benchmark adjustment. Downward revisions to hours in nonfarm business and manufacturing in both years contributed to annual productivity growth of 3.9 percent and 6.7 percent respectively for 2010, and 3.7 percent and 2.4 percent for 2009.