Manufacturing Labor Productivity Gains Slowed in the Third Quarter

By November 14, 2013Economy

The Bureau of Labor Statistics reports lower manufacturing labor productivity, down from 2.7 percent growth in the second quarter to 0.4 percent in the third quarter. Output in the manufacturing sector improved (up from 0.1 percent to 1.3 percent), but compensation costs forced unit labor costs higher for the second straight quarter, up 1.3 percent. On a year-over-year basis, however, unit labor costs have been flat, helping to improve global competitiveness.

With that said, the sector’s productivity gains have largely occurred among durable goods firms. Labor productivity was up 1.2 percent in the third quarter for durable goods businesses; whereas, productivity declined by 0.1 percent for nondurable goods entities. Output (up 2.7 percent for durable goods vs. down 0.3 percent for nondurables) and hours worked (up 1.5 percent vs. down 0.2 percent) followed a similar pattern. Unit labor costs were down 0.4 percent in the durable goods sector. In contrast, they were up 3.4 percent for nondurable goods firms.

In general, labor productivity gains have helped to make U.S. manufacturing more attractive as the sector has become more “lean” in recent years. For instance, unit labor costs for manufacturers have fallen 5.0 percent since the second quarter of 2009 (the end of the recession), with unit labor costs for durable goods off an even stronger 11.1 percent over that time frame.

Meanwhile, nonfarm business labor productivity edged slightly higher than before, up 1.9 percent in the third quarter relative to 1.8 percent in the second quarter. Output growth was also stronger (up from 3.3 percent to 3.7 percent). Moreover, unit labor costs declined 0.6 percent, an improvement from the gain of 0.5 percent in the previous quarter. Year-over-year growth in unit labor costs was 1.9 percent, or 3.1 percent since the end of the recession.

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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