Faster Output+More Moderate Productivity=Mfg Job Gains in Q1

By May 6, 2010Economy

Today’s productivity report by the Labor Department is another sign pointing to a likely positive manufacturing jobs report tomorrow.

Manufacturing productivity growth in the first quarter slowed to an annual rate of 2.5 percent and was outpaced by manufacturing output, which rose at an annual rate of 7.5 percent. As a result, hours worked in manufacturing rose by 4.9 percent. The last time hours worked in manufacturing rose near this fast pace was in the fourth quarter of 2005 and the first quarter of 2006, at which time manufacturing employment also rose.

For the overall nonfarm business sector, productivity grew at an annual rate of 3.6 percent in the first quarter, faster than the 1.9 percent growth in hourly compensation. As a result, unit labor costs fell by 1.6 percent, signaling that there are currently little inflationary worries from the labor market.

Today’s report provides the underlying fundamentals of why manufacturers finally returned to hiring workers early this year.

Whether manufacturers increase or decrease employment depends to a large degree on the pace of output as well as productivity growth. Historically, when output grows faster than productivity, manufacturers increase employment. Conversely, when output grows slower than productivity, employment declines.

Going forward over the next several years, the number of jobs that will return to manufacturing will depend on the pace of both productivity and output. An increase in manufacturing output will depend not only on the pace of the U.S. domestic economy but increasingly on the recovery of the global economy, since more than a quarter of the manufacturing workforce is supported by exports of U.S.-made products to markets abroad.


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