The Bureau of Labor Statistics revised its labor productivity data for the manufacturing sector in the second quarter, down from its original estimate of 2.7 percent to 1.9 percent. In the original release, manufacturing output rose 0.1 percent. Instead, production was off by 0.6 percent, pushing the overall productivity numbers down. With real hourly compensation up 4.2 percent in the sector, unit labor costs for manufacturers increased 2.3 percent in the second quarter, up from the 1.4 percent gain in the earlier data. Ideally, we would like to see negative unit labor costs, as this helps businesses become more competitive globally.
The downward revisions to productivity extended to both durable and nondurable goods sectors, with the former faring better than the latter. Labor productivity in the durable goods sector was lowered from 4.5 percent to 3.5 percent, with output up 0.5 percent and unit labor costs increasing 1.3 percent. This represented a sizable deceleration in output from the first quarter, but only a marginal decline in labor productivity.
For nondurable goods businesses, output fell 1.9 percent and productivity was up just 0.2 percent. Each was lower than the original estimate of down 1.5 percent and up 0.7 percent, respectively. Unit labor costs for nondurable goods manufacturers rose 3.2 percent. These were significant pullbacks from the growth experienced in the first quarter.
In the larger economy, the revisions were on the favorable side. Nonfarm labor productivity grew 2.3 percent, much higher than the original estimate of 0.9 percent. That was the fastest pace since the third quarter of 2012. Output increased 3.7 percent, up from the 2.6 percent figure reported before. Real compensation in the nonfarm sector was up 2.3 percent, and unit labor costs were unchanged. Unit labor costs had been said to have risen 1.4 percent earlier, suggesting improvement in this variable.
Chad Moutray is the chief economist, National Association of Manufacturers.