The Bureau of Labor Statistics reported that nonfarm business labor productivity fell 0.3 percent in the second quarter, with unit labor costs rising 2.2 percent. (All percentages are in annual rates of growth) For manufacturers, the drop was even steeper. After increasing by 4.2 percent in the first quarter (revised down from an earlier estimate of 6.1 percent), manufacturing productivity dropped 2 percent in the second quarter. Manufacturing output slowed significantly to a 0.6 percent growth rate in the first quarter, which was significantly slower than experienced in the months preceding it.
Manufacturing unit labor costs, which had fallen in the first quarter, rose 4.4 percent in the second quarter. Despite these numbers, unit labor costs for manufacturers over the past year have been flat, and productivity has risen 2.3 percent.
Parsing through the manufacturing data, one clearly sees a split between durable and nondurable goods productivity. After growing by 6.9 percent in the first quarter, the output per hour for all persons from durable goods industries decreased 3.5 percent in the second quarter. Overall output increased by 1.4 percent, however, which was well off of the 13.8 percent growth from the previous quarter, reflecting the supply chain disruptions and other challenges in the sector in the spring months.
Nondurable goods output, though, fell 0.2 percent in the second quarter, after growing by 2 percent in the first quarter. Nondurable manufacturing productivity rose by 1.2 percent, with unit labor costs up 1.8 percent for the quarter.
Overall, these numbers reflect weaknesses in the manufacturing sector in the second quarter. The slowdown can be seen in the lower growth rates for output, especially for durables but also for nondurables. As a result, unit labor costs which fell throughout much of the past year-and-a-half (a 4 percent decline in 2010, for instance), rose in the second quarter of this year.
To stay competitive, we will need a strong manufacturing sector, with renewed growth in output and continued gains in innovation and productivity to help keep those costs in check with our international competitors.
Chad Moutray is chief economist, National Association of Manufacturers.