Manufacturing Productivity Falls By 0.4 Percent in the Fourth Quarter

By February 2, 2012Economy

The Bureau of Labor Statistics reported that nonfarm business labor productivity increased 0.7 percent in the fourth quarter, with unit labor costs up 1.2 percent. For the year, productivity in the nonfarm sector rose 0.7 percent, well below its pace of 2.3 percent and 4.1 percent in 2009 and 2010, respectively.

Manufacturing productivity fell in the fourth quarter by 0.4 percent, a reality check perhaps from the steep 5.3 percent growth rate experienced in the third quarter. Output per hour for all workers in the durable goods sector dropped 0.4 percent, as well, representing a turnaround from the 8.7 percent increase in the previous quarter.

Note that the third quarter rates were unsustainable, so the falloff should not be a total surprise; in addition, we have seen a pickup in employment – a sign that increased output and productivity has led to new hires. Indeed, one factor in the drop-off in productivity was that the number of hours worked rose 4.2 percent in the quarter, more than offsetting the rise in output of 3.8 percent.

Nondurable goods productivity, which grew more slowly at 1.6 percent in the third quarter, rose an additional 1.3 percent in the fourth quarter.

Despite the downtick in manufacturing productivity in the fourth quarter, the longer-term trend has been positive.  For 2011, manufacturing productivity rose 2.8 percent, or about half of the 6.1 percent pace of 2010. Overall unit labor costs fell by 4.2 percent and 1.3 percent in 2010 and 2011, respectively, helping to keep American manufacturers more competitive.

It is notable, for instance, that much of the productivity gains of the third quarter – which were phenomenally large, particularly for durables – was sustained. Manufacturing output rose 4.9 percent for the year. In the durable and nondurable goods sector, output increased by 8.1 percent and 1.7 percent, respectively. This is consistent with the recent recovery in activity that we have seen in many other statistics.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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