The Bureau of Labor Statistics reported that nonfarm productivity was up 2.9 percent in the third quarter. This is up sharply from the 1.9 percent estimate originally provided and was largely a factor of higher-than-originally-stated output. Indeed, real GDP was also revised higher last week and is now estimated to have gone up by 2.7 percent. The larger labor productivity numbers helped to push unit labor costs for the nonfarm sector down 1.9 percent in the third quarter for the second quarter in a row, helping to improve businesses’ costs and competitiveness.
For manufacturers, the opposite is true. The previous estimate said that manufacturing labor productivity fell by 0.4 percent in the third quarter; this revision pushes that to a decrease of 0.7 percent. Output also dropped 0.7 percent, and the number of hours was unchanged. The net result was that unit labor costs for the sector declined by 3.2 percent. Therefore, manufacturers have seen substantial unit labor cost increases so far in 2012, reversing the more positive news of 2010 and 2011 when productivity was helping to make the sector more competitive globally. Much of this shift can be explained by decelerating, or more recently falling, output.
It might also be instructive to separate out this discussion between durable and nondurable goods manufacturing. In the third quarter, nondurables fared better than durables. Output for nondurables rose 0.7 percent, which contrasts with a 1.9 percent drop for durables. This largely accounts for the difference in labor productivity between the two, with durable goods output per hour for all persons down 1.6 percent and nondurable productivity up 0.7 percent. With that said, unit labor costs for each were both higher, up 3.7 percent and 3.0 percent, respectively.
Chad Moutray is the chief economist, National Association of Manufacturers.