Visual Essay: Productivity Trends
Productivity trends in business cycles:
a visual essay
Michael Chernousov, Susan E. Fleck, and John Glaser
P
roductivity measures are used to assess the
state of the economy. The series of charts in
this visual essay provides an overview of labor productivity and related measures in the U.S.
nonfarm business and manufacturing sectors. The
nonfarm business sector accounts for three-fourths
of output and employment in the total economy;
manufacturing—a subsector of nonfarm businesses—produces about a quarter of U.S. output and
accounts for just under 10 percent of its employment.
Capital-intensive investment, improvements in
technology, and better skilled workers, among other
factors, translate into labor productivity growth in
the long term. More than 60 years of data—spanning 11 cycles of recessions and expansions—highlight long-term trends in productivity, output, and
hours worked. Productivity data are cyclical. In a
recession, output and hours worked decline, although usually not in tandem. Thus, productivity,
which is the measure of output per hour worked,
provides a window through which to analyze business cycles.
The National Bureau of Economic Research
(NBER) is responsible for identifying the month
in which changes in economic activity signal the
end of a business-cycle expansion, as well as the
month in which the ensuing recession ends. The
last month of expansion is called the peak; the last
month of a business-cycle contraction, or recession,
is called the trough. Recessions are measured by the
time between the peak and the trough, and expansions are measured by the time between the trough
and the peak.
50 Monthly Labor Review • June 2009
The productivity measures in this visual essay are
quarterly data. In order to represent quarterly data
in the context of business cycles that NBER defines
using months, the quarter that contains the month
designated by NBER as the peak or trough of economic activity is identified in this visual essay as the
peak quarter or trough quarter. For example, the peak
marking the onset of the present recession is considered for the purpose of this essay to be the fourth
quarter of 2007, because NBER designated December
2007 as the most recent peak month of the business
cycle.
Since 1947, the first year for which nonfarm productivity data are available, there have been 11 recessions, including the one beginning in December
2007. The dates below are the years and quarters that
mark these recessions and expansions; no trough has
been designated for the present recession.
Year/quarter of the peak
1948:4
1953:2
1957:3
1960:2
1969:4
1973:4
1980:1
1981:3
1990:3
2001:1
2007:4
Year/quarter of the trough
1949:4
1954:2
1958:2
1961:1
1970:4
1975:1
1980:3
1982:4
1991:1
2001:4
Not yet designated
The current recession continues to show declining
output and hours worked through the first quarter
of 2009. Two other post-WWII recessions, from the
fourth quarter of 1973 to the first quarter of 1975
and from the third quarter of 1981 to the fourth
quarter of 1982, also lasted through five quarters;
the rest were shorter. Manufacturing data are available from 1949 onward.
The charts in this visual essay highlight output
and hours worked as well as output per hour worked,
or labor productivity; data on labor costs are also
included. Data are presented as indexes and growth
rates. Index measures are derived from data on output, hours worked, and compensation. Comparing
data based on different units and levels—such as
billions of dollars or thousands of hours—can skew
the analysis. To improve comparative analysis, the
long-term trends are based on the natural logarithm
of the index measures. The natural logarithm creates
a straighter line of data when comparing different
data series based on widely different levels over long
periods of time. Growth rates are based on percent
changes in indexes and are compounded to create an-
nual rates. Averages of productivity measures across
recessions and expansions are weighted averages of
compound annual rates, in which the weights are
based on the number of quarters that compose the
various time periods, excluding the current recession. All data are seasonally adjusted.
The data in these charts are updated eight times
a year in the Productivity and Costs news release
prepared by BLS. The charts prepared for this visual
essay are based on the June 4, 2009, Productivity
and Costs news release. All data are quarterly, unless otherwise noted. Data are available at the BLS
website, www.bls.gov/data/home.htm, or by contacting the BLS Division of Major Sector Productivity by telephone at (202) 691–5606 or by email at
[email protected]. This essay was prepared by Michael Chernousov, economist; Susan E. Fleck, division chief; and John Glaser, supervisory economist;
in the Division of Major Sector Productivity in the
Office of Productivity and Technology, Bureau of
Labor Statistics.
Monthly Labor Review • June 2009 51
Visual Essay: Productivity Trends
1.Productivity in the nonfarm business sector, 1947–2009
Natural logarithm
of indexes
Natural logarithm
of indexes
6.0
6.0
5.8
5.8
5.6
5.6
5.4
5.4
5.2
5.2
5.0
5.0
4.8
4.8
4.6
4.6
1947
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
NOTE: The shaded bars denote recessions. Because the data in the chart are quarterly, peaks and troughs of economic activity are assigned
to quarters instead of months. An endpoint for the most recent recession has yet to be designated.
• Labor productivity is defined as total output divided by total hours worked by all people: employees, the self-employed, and unpaid family workers. Productivity in the nonfarm business sector often dips during recessions.
• Overall, productivity growth has been positive since the series began in 1947.
52 Monthly Labor Review • June 2009
2.Productivity growth in the nonfarm business sector, 1947–2008
Average annual
percent change
Average annual
percent change
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0
1947–1973
1973–1979
1979–1990
1990–1995
1995–2000
2000–2005
2005–2008
0
• Though productivity growth has trended upwards over the last 60 years, a slowdown in productivity growth in
nonfarm businesses took place from the early 1970s through 1995.
• After 1995 productivity growth shifted upwards, until recently. This productivity boost is often attributed to capitalintensive investments and improvements in technology.
Monthly Labor Review • June 2009 53
Visual Essay: Productivity Trends
3.Productivity, output, and hours worked, nonfarm business sector, 1947–2009
Natural logarithm
of indexes
Natural logarithm
of indexes
7.0
7.0
6.5
6.5
Output
6.0
6.0
Productivity
5.5
5.5
Hours worked
5.0
4.5
1947
5.0
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
4.5
NOTE: The shaded bars denote recessions. Because the data in the chart are quarterly, peaks and troughs of economic activity are assigned
to quarters instead of months. An endpoint for the most recent recession has yet to be designated.
• In recessions both output and hours worked contract. Output usually slows earlier than hours worked in a recession
and recovers sooner during an expansion.
• Over the long term, output has outpaced hours worked. Hours worked have taken longer to return to prerecession
levels, especially in the most recent recessions.
54 Monthly Labor Review • June 2009
4.Productivity growth, nonfarm business sector, first quarter 1947–first quarter 2009
Percent change
at an annual rate
Percent change
at an annual rate
20.0
20.0
From previous quarter, compound annual rate
From same quarter 1 year ago
15.0
15.0
10.0
10.0
5.0
5.0
0.0
0.0
–5.0
–5.0
–10.0
–10.0
–15.0
1947
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
–15.0
NOTE: The shaded bars denote recessions. Because the data in the chart are quarterly, peaks and troughs of economic activity are assigned
to quarters instead of months. An endpoint for the most recent recession has yet to be designated.
• Quarterly movement in the growth of nonfarm business output per hour is highly volatile. The percent change
from a given quarter of one year to the same quarter of the following year provides a longer term perspective.
• Recessions generally end with high productivity growth that carries on into the initial few quarters of the
recovery, illustrated by spikes in the blue line just beyond the shaded areas.
Monthly Labor Review • June 2009 55
Visual Essay: Productivity Trends
5.Growth in productivity, output, and hours worked during recessions, nonfarm business sector,
fourth quarter 1948–first quarter 2009
Average annual
percent change
Average annual
percent change
6.0
6.0
g Productivity g Output g Hours worked
4.0
4.0
2.0
2.0
0.0
0.0
–2.0
–2.0
–4.0
–4.0
–6.0
–6.0
–8.0
–8.0
–10.0
1948: Q4 1953: Q2 1957: Q3
to
to
to
1949: Q4 1954: Q2 1958: Q2
1960: Q2 1969: Q4 1973: Q4 1980: Q1 1981: Q3 1990: Q3 2001: Q1
to
to
to
to
to
to
to
1961: Q1 1970: Q4 1975: Q1 1980: Q3 1982: Q4 1991: Q1 2001: Q4
Average
through
2001
2007: Q4
to
2009: Q1
–10.0
• Negative productivity growth is more likely during recessions than expansions. Three of the 10 recessions prior to
the current one involved a contraction in output that surpassed the decline in hours in the nonfarm business sector.
• Productivity growth in recessions may also be positive, albeit weak, when the change in hours worked is less positive
or more negative than the change in output. In 4 of the last 10 recessions before the current one, nonfarm business
productivity experienced more than 1.0 percent growth. For the 10 recessions combined, productivity growth averaged 1.1 percent.
56 Monthly Labor Review • June 2009
6.Growth in productivity, output, and hours worked during expansions, nonfarm business sector,
fourth quarter 1949–fourth quarter 2007
Average annual
percent change
Average annual
percent change
8.0
8.0
g Productivity g Output g Hours worked
7.0
7.0
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
1949: Q4
to
1953: Q2
1954: Q2
to
1957: Q3
1958: Q2
to
1960: Q2
1961: Q1
to
1969: Q4
1970: Q4
to
1973: Q4
1975: Q1
to
1980: Q1
1980: Q3
to
1981: Q3
1982: Q4
to
1990: Q3
1991: Q1
to
2001: Q1
2001: Q4
to
2007: Q4
Average
through
2007
0.0
• Expansions are marked by growth in total hours worked and even higher growth in output. This combination results
in higher productivity growth during the upturn in the business cycle.
• Expansions typically last much longer than recessionary periods and exhibit greater productivity growth, which has
averaged 2.4 percent.
Monthly Labor Review • June 2009 57
Visual Essay: Productivity Trends
7.Productivity, output, and hours worked, manufacturing sector, first quarter 1949–first quarter 2009
Natural logarithm
of indexes
Natural logarithm
of indexes
6.5
6.5
Output
6.0
6.0
Productivity
5.5
5.5
5.0
5.0
Hours worked
4.5
4.0
4.5
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
4.0
NOTE: The shaded bars denote recessions. Because the data in the chart are quarterly, peaks and troughs of economic activity are assigned
to quarters instead of months. An endpoint for the most recent recession has yet to be designated.
• Manufacturing-sector data from 1949 onward highlight how labor productivity has improved steadily over the last
six decades. Over the last three decades, this is due partly to a fall-off in hours worked.
• Recessions are clearly marked in historical manufacturing-sector data by downward shifts in output and hours
worked.
• The 2001 recession saw a large dip in manufacturing output, as well as a decline in hours worked that continued
throughout the subsequent expansion.
58 Monthly Labor Review • June 2009
8.Growth in productivity, output, and hours worked during recessions, manufacturing sector,
second quarter 1953–first quarter 2009
Average annual
percent change
Average annual
percent change
4.0
4.0
2.0
2.0
0.0
0.0
–2.0
–2.0
–4.0
–4.0
–6.0
–6.0
–8.0
–8.0
–10.0
–10.0
–12.0
–12.0
g Productivity g Output g Hours worked
–14.0
1953: Q2
to
1954: Q2
1957: Q3
to
1958: Q2
1960: Q2
to
1961: Q1
1969: Q4
to
1970: Q4
1973: Q4
to
1975: Q1
1980: Q1
to
1980: Q3
1981: Q3
to
1982: Q4
1990: Q3
to
1991: Q1
–14.0
2001: Q1
to
2001: Q4
Average
through
2001
2007: Q4
to
2009: Q1
• In the manufacturing sector, recessions are consistently characterized by reductions in output and hours worked that
are deeper than in the nonfarm business sector as a whole. (See chart 5.)
• Half of the recessions showed positive productivity growth because the decline in hours worked outpaced the
contraction of output. On average, productivity has grown 1.8 percent in the manufacturing sector in the nine recessionary periods beginning with the recession that started in 1953.
Monthly Labor Review • June 2009 59
Visual Essay: Productivity Trends
9.Growth in productivity, output, and hours worked during expansions, manufacturing sector,
second quarter 1954–fourth quarter 2007
Average annual
percent change
Average annual
percent change
10.0
10.0
g Productivity g Output g Hours worked
8.0
8.0
6.0
6.0
4.0
4.0
2.0
2.0
0.0
0.0
–2.0
–2.0
–4.0
1954: Q2
to
1957: Q3
1958: Q2
to
1960: Q2
1961: Q1
to
1969: Q4
1970: Q4
to
1973: Q4
1975: Q1
to
1980: Q1
1980: Q3
to
1981: Q3
1982: Q4
to
1990: Q3
1991: Q1
to
2001: Q1
2001: Q4
to
2007: Q4
Average
through
2007
–4.0
• In the manufacturing sector, expansions—in contrast to recessions—consistently show positive productivity growth
because output advances faster than hours worked. The average rate of manufacturing-sector productivity growth
during recoveries since 1949 is 3.2 percent.
• Beginning with the economic recovery in 1970, hours worked in manufacturing grew more slowly with each successive expansion and fell outright from 2001 to 2007.
60 Monthly Labor Review • June 2009
10. Productivity and real hourly compensation, nonfarm business sector, 1947–2009
Natural logarithm
of indexes
Natural logarithm
of indexes
6.0
6.0
5.8
5.8
Productivity
5.6
5.6
5.4
5.2
5.4
Real hourly
compensation
5.2
5.0
5.0
4.8
4.8
4.6
4.6
1947
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
NOTE: The shaded bars denote recessions. Because the data in the chart are quarterly, peaks and troughs of economic activity are assigned
to quarters instead of months. An endpoint for the most recent recession has yet to be designated.
• Real hourly compensation, which measures wages plus benefits adjusted for consumer prices, does not typically
experience dips during recessions. This trend implies that workers who maintain jobs during a recession do not
see a loss in their purchasing power.
• Output per hour closely tracked real hourly compensation through the 1970s. After 1982 productivity began
growing faster than real hourly compensation.
Monthly Labor Review • June 2009 61
Visual Essay: Productivity Trends
11. Productivity, hourly compensation, and unit labor costs, nonfarm business sector, 1947–2009
Natural logarithm
of indexes
Natural logarithm
of indexes
8.0
7.5
8.0
Hourly
compensation
7.0
6.5
6.0
7.5
7.0
Unit labor costs
Productivity
6.5
6.0
5.5
5.5
5.0
5.0
4.5
4.5
1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
NOTE: The shaded bars denote recessions. Because the data in the chart are quarterly, peaks and troughs of economic activity are assigned
to quarters instead of months. An endpoint for the most recent recession has yet to be designated.
• Unit labor costs are the ratio of hourly compensation to productivity. Because productivity has steadily improved,
unit labor costs have not increased as fast as hourly compensation.
• Unit labor costs tend to rise in the beginning of recessions, as output falls faster than hours worked and productivity
stagnates.
62 Monthly Labor Review • June 2009
12. Growth in productivity, hourly compensation, and unit labor costs during recessions,
nonfarm business sector, fourth quarter 1948–first quarter 2009
Average annual
percent change
Average annual
percent change
14.0
14.0
g Productivity g Hourly compensation g Unit labor costs
12.0
12.0
10.0
10.0
8.0
8.0
6.0
6.0
4.0
4.0
2.0
2.0
0.0
0.0
–2.0
–2.0
–4.0
1948: Q4
to
1949: Q4
1953: Q2 1957: Q3 1960: Q2 1969: Q4 1973: Q4 1980: Q1 1981: Q3 1990: Q3 2001: Q1
to
to
to
to
to
to
to
to
to
1954: Q2 1958: Q2 1961: Q1 1970: Q4 1975: Q1 1980: Q3 1982: Q4 1991: Q1 2001: Q4
Average 2007: Q4
to
through
2009: Q1
2001
–4.0
• During the recessions of the 1970s and early 1980s, unit labor costs soared as productivity gains failed to keep up
with hourly compensation increases. High inflation was characteristic of the 1970s and early 1980s.
Monthly Labor Review • June 2009 63