Productivity Measurement Analysis series – United States, Q4 2024 by Martin Fleming.
General Summary and Main Figures
Following five quarters of strong gains, U.S. nonfarm business sector labour productivity increased at a seasonally adjusted annual rate (SAAR) of 1.2% in the fourth quarter of 2024, the U.S. Bureau of Labor Statistics (BLS) reported on 8 February. The increase was the smallest since Q1 2023.
The 8 February release included preliminary fourth quarter data and 2024 annual averages. In the fourth quarter, nonfarm business sector output increased 2.3% and hours worked increased 1.0%, both quarter-over-quarter (QoQ) at a SAAR. From the same quarter a year ago, nonfarm business sector labour productivity increased 1.6%, down from a 2.1% third quarter increase, a 2.4% second quarter increase, and a 2.8% first quarter increase.
Unit labour costs in the nonfarm business sector rose at a 3.0% SAAR in the fourth quarter, reflecting a 4.2% increase in hourly compensation and a 1.2% increase in productivity. Unit labour costs increased 2.7% over the last four quarters.
U.S. Productivity and Costs – Fourth Quarter 2024, Preliminary
|
Sector |
Quarter-on-year ago comparison, SAAR (Q4 2023) | Quarter-on-quarter comparison (Q3
2024) |
Pre-COVID-19 comparison, SAAR (Q4 2019) |
| Nonfarm Business | |||
| Labour Productivity | 1.6% | 1.2% | 1.8% |
| Unit Labour Cost | 2.7% | 3.0% | 3.3% |
| Manufacturing | |||
| Labour Productivity | 0.2% | 0.8% | 0.1% |
| Unit Labour Cost | 1.5% | 3.3% | 4.1% |
| Nonfinancial Corporate* | |||
| Labour Productivity | 3.9% | 3.0% | 2.2% |
| Unit Labour Cost | 0.8% | -0.4% | 2.9% |
*Q3 2024 most recent data. Comparison with Q3 2023, Q2 2024, and Q4 2019.
Manufacturing sector labour productivity rose 0.8% SAAR in the fourth quarter of 2024, as output declined 1.0% and hours worked fell 1.8%, all QoQ at SAAR. Unit labour costs in the manufacturing sector increased 3.3%, reflecting a 4.1% increase in hourly compensation and a 0.8% increase in productivity. Manufacturing unit labour costs increased 1.5% from the same quarter a year ago.
In the fourth quarter, manufacturing sector productivity was 0.2% above the year ago level with an annual average growth of 0.1% over the 20 quarters since the fourth quarter of 2019 prior to the onset of the COVID-19 pandemic. Over the same 20 quarter period, unit labour costs rose at annual average rate of 4.1%. For the third quarter, manufacturing sector productivity was revised down substantially. The current estimate is a 0.5% SAAR increase in manufacturing sector productivity but revised down from a 0.9% estimate on 10 December.
In the third quarter – the most recent quarter available – productivity growth in the nonfinancial corporate sector rose 3.0% SAAR from the second quarter and 3.9% from the same 2023 quarter. The third quarter 3.0% increase resulted from a 3.9% SAAR output increase and a 0.9% increase in hours worked. On a year-over-year basis, a 4.7% increase in output and a 0.8% increase in labour input resulted in the 3.9% labour productivity increase.
Insights into the Q4 2024 Productivity Release
After two strong mid-year quarters, the Q4 nonfarm productivity growth slowdown resulted in a 2.3% 2024 annual increase. The 2024 increase was the strongest annual increase since 2010, except for the 2020 pandemic interrupted year. Last year’s gain was also measurably above the 1.5% long-term trend.
However, the manufacturing sector continues to deliver disappointing results. In Q4 2024, output and hours worked were both 1.0% below mid-2022 and the productivity level unchanged since mid-2022. By contrast, unit labour costs increased at an annual rate of more than 3.3% over the nine quarters.
By contrast, productivity in the nonfinancial corporate sector continues a period of improved growth dating back to mid 2023. Over the five quarters from Q2 2023 to Q3 2024, productivity grew at an average annual rate of 3.5%, with output growth at 4.4% and hours increasing only 0.8%.
Discussion
The 2023 – 2024 productivity growth improvement continues the debate of whether the recent gains are cyclical or a reflection of benefits from artificial intelligence (AI) model and solution deployment and adoption. While there could be some of both, it’s more likely that the gains reflect efficiency improvements as service providers and large nonfinancial corporations return operating scale to prior levels. Historically, productivity growth has been pro-cyclical.
It’s very likely that early technology applications, such generative AI, deployed in very large organisations are contributing to productivity gains. The enormous number of workers who have changed jobs over the past three years presumably have also found more satisfying and productive roles. 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 stagnant 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 5.0% below the 2011 peak.
