Manufacturing Productivity Slows in the Second Quarter

By September 5, 2012Economy

The Bureau of Labor Statistics revised its estimate of manufacturing labor productivity in the second quarter, down from original estimate of 0.2 percent to 0.1 percent. This is significantly slower than the 5.5 percent gain in the first quarter, as was noted in the original release in early August. Output slowed considerably from 10.1 percent in the first quarter to 1.5 percent in the second quarter. Durable goods were the primary driver of this growth, with its output up 5.4 percent; this compares to a 2.8 percent drop in output for nondurables.

In the larger economy, nonfarm business labor productivity rose more than originally estimated, up 2.2 percent versus 1.6 percent. This revision was due to output growth that was higher than thought, coinciding with fewer labor hours. Output grew 2.4 percent, with the number of hours worked eking out a slight 0.1 percent gain.  Unit labor costs increased 1.5 percent, significantly slower than the 6.4 percent jump from the first quarter (which had slow output growth, the opposite of what was observed in the manufacturing sector).

In general, manufacturers have benefited from stronger growth in output and labor productivity over the past few years. This was still true for the durable goods sector, but the manufacturing sector as a whole saw its output decline significantly in the second quarter. (This has continued into the third quarter, according to other data points.)

Economic weaknesses have lessened manufacturing activity overall. Slowing global growth and economic and political uncertainties domestically are weighing heavily on manufacturers’ and consumers’ minds, and these figures are one of many released lately which reiterate this. It will be important for policymakers to act sooner rather than later to address these concerns.

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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