The Bureau of Labor Statistics reported that manufacturing productivity rose 0.5 percent in the fourth quarter. For the year, labor productivity for the sector was up 2.0 percent. This was below the 6.4 percent and 2.5 percent productivity growth rates experienced in 2010 and 2012, respectively. The fourth quarter 2012 figure was largely the result of higher output, up 0.7 percent. However, increased compensation costs (up 1.0 percent) pushed up unit labor costs by 0.4 percent. Unit labor costs were 0.4 percent higher for 2012, as well.
Breaking these figures down, durable goods manufacturers fared better in the fourth quarter than their nondurable goods counterparts. Labor productivity increased 1.6 percent for the quarter on higher output growth of 1.8 percent. In contrast, productivity and output for nondurables declined 0.5 percent and 0.6 percent, respectively. The net result was lower unit labor costs in the durable goods sectors (down 0.7 percent), which help these manufacturers stay competitive globally. Unit labor costs for nondurable goods industries rose 1.7 percent.
Durable goods firms also had better results than those in the larger nonfarm business economy. Labor productivity for nonfarm firms fell 2.0 percent in the fourth quarter, rising 1.0 percent year-over-year. The 2012 labor productivity figure was a slight improvement from the 0.7 percent output per hour growth rate experienced in 2011. The fourth quarter decline in productivity stemmed from relatively flat growth in output, up just 0.1 percent, while compensation rose 2.4 percent. The net result was higher unit labor costs, up 4.5 percent. For the year, output declined by 1.5 percent and unit labor costs declined by 2.3 percent.
Overall, the fourth quarter productivity numbers reflect reduced output in the economy. Businesses were experiencing weaker sales growth and many of them were worried about the impact of fiscal cliff talks. Last week, we learned that real GDP shrunk by 0.1 percent in the fourth quarter, largely on these concerns. At the same time, these figures also show that durable goods industries saw some improvements in output in the fourth quarter, which helped push total manufacturing labor productivity up 0.5 percent. Other data tend to show this, as well, with some manufacturers benefitting from cleanup of Hurricane Sandy, and also, we saw stronger new orders in some sectors, especially among motor vehicles.
Chad Moutray is the chief economist, National Association of Manufacturers.