The U.S. Bureau of Labor Statistics reports that productivity within the nonfarm business sector increased at an annual rate of 0.7 percent during the final four months of 2011. The acceleration is a result of a 3.6 percent increase in output coupled with a 2.9 percent increase in number of hours worked. Productivity, output, and hours worked rose 0.5 percent, 2.3 percent, and 1.8 percent over the year, respectively.
During fourth quarter, labor costs grew at an even steeper rate of 1.2 percent as hourly compensation (1.9 percent) grew faster than productivity. Over the year, labor costs rose by 1.3 percent. Labor costs are the ratio of hourly compensation to productivity. Labor costs increase as hourly compensation increases and decrease when productivity increases.
Productivity within the manufacturing sector fell 0.4 percent in fourth quarter 2011 while output and hours worked rose by 3.8 percent and 4.2 percent, respectively. This reflects that largest growth in quarterly gains in hours worked since a 4.8 percent rise in 2005. Labor costs increased by 1.6 percent during the fourth quarter, a 1.1 percent decline over the same period in 2010.
Over the year, hourly compensation decreased by 1.2 percent, a record high decline not surpassed since 1989 when annual hourly compensation fell by 1.7 percent. In 2011, the manufacturing sector experienced a 2.8 percent increase in productivity representing a 4.9 percent in output and an hours worked increase of 2 percent. Labor costs within the sector decreased by 1.3 percent over the previous 12 months.