manufacturing productivity Archives - Shopfloor

Manufacturing Labor Productivity Eased in the Second Quarter

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The Bureau of Labor Statistics reported that labor productivity eased somewhat in the manufacturing sector, up 2.7 percent in the second quarter versus 3.9 percent in the first quarter. Both of these figures, however, exceed the averages of the past years, with labor productivity in the sector up 1.0 percent and 1.8 percent, respectively, in 2011 and 2012. One of the larger challenges with the second quarter data was the slowdown in manufacturing output, which rose just 0.1 percent from the quarter before. As a result, unit labor costs for the sector increased 1.4 percent as compensation costs exceeded the gains in labor productivity. Ideally, we would like to see negative unit labor costs, as this helps us become more competitive globally.

Labor productivity gains were larger in the durable goods sector than for nondurable goods, up 4.5 percent versus 0.7 percent. Along those lines, the data were generally better for durable goods firms on net. Output in the durable goods sector was up 1.5 percent, and unit labor costs rose 0.1 percent on real compensation gains of 4.6 percent. In contrast, nondurable goods output declined 1.5 percent in the second quarter and real compensation was up by 3.5 percent. This pushed unit labor costs for nondurable goods firms up 2.8 percent.

Note that unit labor cost comparisons with the fourth quarter of 2012 and the first quarter of 2013 are somewhat difficult, as noted in June’s revision of first quarter productivity data. The compensation data in those two quarters were impacted by shifts in income due to the fiscal cliff, with accelerated payouts of dividends and bonuses at year’s end inflating compensation in the fourth quarter. The large swing higher in the fourth quarter was then met with a large swing down in the first, making the unit labor cost information more difficult to interpret, both for manufacturers and other businesses.

Turning to the larger economy, nonfarm labor productivity rose 0.9 percent in the second quarter. This follows declines of 1.7 percent each in both of the past two quarters. As such, this was a positive development. Nonfarm output rose 2.6 percent, with unit labor costs up by 1.4 percent. Overall, this data is good, but still not great. The modest gains in labor productivity in the second quarter were better than the 0.5 percent gains of 2011, but they remain below the 2012 average of 1.5 percent.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Manufacturing Productivity Higher in the Durable Goods Sector

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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.

Manufacturing Productivity Slows in the Second Quarter

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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.

Manufacturing Productivity Up 6.3 Percent in First Quarter

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With overall manufacturing output rising, overall productivity among manufacturers rose 6.3 percent in the first quarter of 2011, up from 5.1 percent in the fourth quarter of 2010, according to data released today by the U.S. Bureau of Labor Statistics.  Productivity gains were higher for durable goods (9.8 percent) than nondurables (4.5 percent). Over the course of the last year, manufacturing output per hour for all persons has risen 4.7 percent, and as a result, unit labor costs have fallen 1.4 percent.  Hours worked and compensation grew 3.3 and 2.6 percent, respectively, so the decline in unit labor costs was simply a factor of stronger output growth (up 9.7 percent).

For the overall economy, productivity rose 1.6 percent, slowing from the 2.9 percent gain in the previous quarter, reflecting a sluggish economic growth and rising compensation. Hourly compensation for nonfarm workers was up 2.6 percent, with overall labor costs rising 1.0 percent.

Overall, this report shows that manufacturers are bucking the larger trends in the macroeconomy, with higher output and productivity in the first quarter.  These figures lend credence to that strength, and while unit labor costs fell in this quarter, the overall productivity gains should reinforce the need for additional hiring in the manufacturing sector over the coming months, particularly in light of strong output gains.  Indeed, other surveys have suggested that manufacturers have stepped up their hiring of late.

Chad Moutray is chief economist for the National Association of Manufacturers.

Productivity Up During Fourth Quarter

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Manufacturing continued its strong performance in boosting productivity and competitiveness during the fourth quarter of 2010 according to revised Bureau of Labor Statistics data released today.

Manufacturing led the economy in both the fourth quarter of 2010 and the full year.  For the fourth quarter, productivity (output per hour) in the manufacturing sector increased a very strong 5.9 percent, compared to the 2.3 percent increase in productivity for the economy as a whole. And for the full year of 2010, manufacturing productivity rose a phenomenal 6.7 percent, much faster than the 3.8 percent rate for the whole economy.

The manufacturing productivity increase for 2010 was nearly double the long-term average of 3.7 percent.  The productivity of American manufacturing is so strong that the average U.S. factory worker produced 43 percent more in the fourth quarter of 2010 than ten years ago. 

The rapid growth in productivity has helped U.S. competitiveness, in that while manufacturing labor compensation per hour rose 2.0 percent in 2010, unit labor costs in manufacturing fell 4.4 percent.  

 If manufacturing jobs are to increase in the future, output has to grow faster than productivity.  As the domestic demand for manufactured goods is not expected to grow as rapidly as productivity, faster output is going to depend on greater emphasis on exports.  The rest of the world economy – especially in Asia – is expected to outpace the U.S. economy, and that is where U.S. manufacturing can see the fastest gains.

The importance of exports to manufacturing is already evident in that the Census Bureau’s factory shipments data show that while manufacturing sales grew 9 percent overall in 2010, that was the result of 20 percent growth in exports and only 6 percent growth in domestic shipments.

Frank Vargo is the NAM vice president of international economic affairs.

Manufacturing Productivity Grew Strongly in 2010

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The U.S. manufacturing industry put in a sizzling performance in 2010, according to the Bureau of Labor Statistics productivity and output data released this morning.

Manufacturing output in real terms rose 6.6 percent in 2010, the fastest increase since 1997.  This indicates a good pace of recovery, but output is still 9 percent below the 2007 peak – indicating how serious the recent manufacturing recession has been.

Manufacturers continued their successful efforts to innovate and become more efficient, and manufacturing productivity in 2010 rose a solid 6 percent, the best productivity gain since 2003 – and considerably faster than the average 3.6 percent gain since 1987.

 Manufacturing productivity has grown so rapidly that in 2010 the average factory worker produced 41 percent more than in 2000.  When output does not grow as rapidly as productivity, fewer jobs are needed, and that has been happening since 2000.

However, in 2010, the 6.6 percent output growth marginally exceeded the 6.0 percent productivity growth; and as a consequence, manufacturing employment grew in 2010, with preliminary Labor Department figures showing 138,000 more factory jobs in December 2010 than in the year-earlier period. 

Fourth quarter manufacturing productivity grew at an annual rate of 5.8 percent, considerably above the long-term average and up significantly from the previous two quarters.  Output growth slowed somewhat in the quarter, to an annual rate of 3.7 percent.  Leading indicators, however, including the recent Institute for Supply Management data, hint that rate of growth may accelerate in the first quarter of 2011.

These figures are encouraging, but it is not baked in the cake that they will be repeated this year or next.  Manufacturing, though recovering, is still below where it was three years ago; and the Administration and the Congress need to focus more intensely than ever on pro-manufacturing policies.

Frank Vargo is the NAM vice president for international economic affairs

Mercatus Center: Manufacturing Productivity and Jobs since 1975

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Veronique de Rugy, is a senior research fellow at the Mercatus Center at George Mason University. She has a new analysis, “U.S. Manufacturing: Output vs. Jobs Since 1975“:

This week, Veronique de Rugy examines changes in employment and productivity in the American manufacturing sector. Since 1975, manufacturing output has more than doubled, while employment in the sector has decreased by 31%. While these American job losses are indeed sobering, they are not an indication of declining U.S. competitiveness. In fact, these statistics reveal that the average American manufacturer is over three times more productive today than they were in 1975 – a sure sign of economic progress.

The true cause of dwindling American competitiveness is a tax code that puts domestic firms at a clear disadvantage – not a lack of skill or innovation on the part of the American worker.

Veronique de Rugy explains why the price of our tax code is hurting American jobs at Reason Online.

The Reason column is very helpful for getting one’s head around the anti-investment U.S. global system of taxation versus the more common territorial system. De Rugy writes:

Not only is the U.S. rate too high, but the U.S. government also taxes corporations on their worldwide income. That means profits made by an American-owned computer plant are subject to U.S. tax whether the plant is located in Texas or Ireland.

Most other major countries do not tax foreign business income as aggressively. In fact, about half of OECD nations have “territorial” systems that tax firms only on their domestic income. Read More

On the Supposed Decline of Manufacturing

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Harold Meyerson, The Washington Post’s most liberal opinion columnist, had a column last week, “Just One Word: Factories,” that boiled down to: Manufacturing is important and the United States should appreciate it more. Eh. Even knowing that Meyerson’s usual policy prescriptions would damage U.S. manufacturing competitiveness, there wasn’t a lot of that in the column, so who could object?

Dan Ikenson at Cato, that’s who. And boy, does he do it with brio. We’ll excerpt at length (asking Ikenson’s indulgence) because he offers facts instead of fallacies. From “Harold Meyerson is Part of the Problem“:

Meyerson makes some claims that cannot be allowed to stand, such as.

“”We don’t [make things] any more – at least, not like we used to. Since 1987, manufacturing as a share of our gross domestic product has declined 30 percent.”

First of all, please note that Meyerson’s second sentence does nothing to support his first. A decline in the manufacturing sector’s share of the total economy speaks to the rapid growth of other sectors of the economy, but says nothing about the change in U.S. manufacturing output or value-added.

According to data from the 2009 Economic Report of the President [4], as gathered and reported yesterday [5] by George Mason University Economics Professor Don Boudreaux, since 1987 real U.S. manufacturing output has increased by 81 percent – hardly a sign of manufacturing decline.

The facts [6] – as reported by the Bureau of Economic Analysis – demonstrate that real manufacturing value-added reached a record high level in 2007 (the last year for which final data are available).  Notwithstanding the recent recession that has affected all sectors of the economy, U.S. manufacturing has been thriving in recent years.

Second, if the United States doesn’t “make things anymore,” then nobody does. According to data [7] from the United Nations Industrial Development Organization, U.S. factories are the world’s most prolific, accounting for 25 percent of global manufacturing value-added. By comparison, Chinese factories account for 10.6 percent.

That may be hard to fathom, given that everyone’s favorite story about shopping in retail establishments these days is that it’s impossible to find anything labeled “Made in the USA.”  But that’s because, increasingly,  U.S. manufacturing produces sophisticated components, such as airplane parts, not consumer goods.

American manufacturing is by no means in decline.  What should be is Meyerson’s myopic way of seeing things.

 Footnotes in the extended entry. Read More