The Bureau of Labor Statistics reported that manufacturing productivity eased in the second quarter, down from 5.5 percent in the first quarter to 0.2 percent. Output slowed considerably, growing by 1.7 percent versus 10.1 percent in the previous quarter. The number of hours worked also decelerated, and unit labor costs were up 0.3 percent.
The overall figures, though, skew the fact that labor productivity differed substantially between the durable and nondurable goods sectors. For durable goods, productivity grew 4.3 percent, with output up 6.2 percent. Unit labor costs, as a result, dropped 4.9 percent, helping the sector become more competitive globally.
On the other hand, nondurable goods activity contracted. Labor productivity among nondurable goods firms declined 4 percent, with output down 3.4 percent. Unit labor costs rose 7.2 percent for nondurables, with increased compensation costs outweighing the lower production levels.
For the larger economy, nonfarm business labor productivity rose 1.6 percent and output increased 2 percent. Unit labor costs were up 1.7 percent. These figures are an improvement from the negative productivity growth observed in the first quarter, which was the result of compensation outpacing output gains.
These numbers suggest that durable goods manufacturers continue to experience labor productivity gains that exceed others in the economy, and this is helping them drive growth. In addition, it is also fueling increased net job creation, as seen in recent labor data. Nondurable goods sectors, though, suffered from a steep drop in output in the second quarter. Nondurables have struggled so far in 2012, with a slight decline in labor productivity in the first quarter, as well, and output has been essentially flat year-to-date for the sector.
In summary, manufacturing activity has lessened with economic weaknesses slowing output for both durable and nondurables. For durables, this still suggests relatively strong growth, even with some easing. Nondurables, though, are contracting. Slowing global growth and economic and political uncertainties domestically are weighing heavily on manufacturers’ and consumers’ minds. It will be important for policymakers to act sooner rather than later to address these concerns.
Chad Moutray is chief economist, National Association of Manufacturers.