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.

The Bureau of Economic Analysis observed flat consumer spending in December 2011, with personal income up 0.5 percent. The unchanged consumption figures followed five consecutive months of growth, and when adjusted for inflation, real consumption declined by 0.1 percent.

Goods purchases in the month were negative, with spending on both durables and nondurables 0.4 percent lower. Consumers did, however, increase their purchases on services, which rose by 0.2 percent. Still, the longer-term trend for consumption has been positive, as it is up 3.9 percent since December 2010.

Real personal disposable income rose 0.3 percent for the month. The income growth was the fastest pace since February 2011. Manufacturing sector wages increased by $7.4 billion for the month to $707.7 billion, reversing the decline experienced in November.

With strong growth in income and no change in spending, the overall savings rate improved from 3.5 percent in November to 4.0 percent in December. It was 5.2 percent in December 2010, reflecting its general movement downward in the second half of 2011.

There appears to be little inflation in the personal consumption numbers. In fact, while prices rose 0.1 percent for all goods and services, they fell by 0.2 percent for both durable and nondurable goods. Prices have fallen for several months now for nondurables, and this is the third consecutive month of declines for durables.

This suggests a limited ability to pass on any of the higher raw material costs experienced at the producer price level. Year-over-year data, though, suggest greater pricing pass-through for nondurables, with prices up 4.8 percent since December 2010 on nondurable goods compared with a decline of 0.5 percent on durables. The overall inflation rate for all goods and services since last year is 2.4 percent.

Chad Moutray is chief economist, National Association of Manufacturers.

Earlier today, the U.S. Census Bureau released final factory order numbers from April, with new orders down 1.2 percent from March.  Much of this analysis was discussed in greater detail in a blog post last week with the release of preliminary durable goods orders, which declined 3.6 percent. The transporation sector took the largest hit, falling 9.3 percent (revised from 9.5 percent in the preliminary analysis). Excluding transporation, new orders dropped 0.2 percent. New orders for nondurable goods rose 0.6 percent. Unfilled orders grew 0.3 percent, and inventories were up for 16 straight months.

Overall, this analysis confirms the larger trend seen in April and May data. Manufacturing output fell dramatically in those months, largely due to supply chain and other issues. Yesterday’s ISM numbers for May were weak, especially given the strength of the sector earlier this year. But, the good news is that the ISM numbers were mostly above 50 (except for inventories) — a sign that the sector is still growing, albeit much slower than before.  Tomorrow, we will see employment numbers that will continue to reflect this weakness, perhaps mirroring the decline in manufacturing employment seen in the recent ADP numbers.

Interestingly, yesterday I participated in a webinar to discuss the economy for RSM McGladrey. The firm recently released the Spring 2011 Manufacturing & Distribution Monitor, which surveys firms on their current business outlook. As we have seen in recent regional Federal Reserve Bank surveys, while current economic indicators are negative, the longer-term forecast is more positive. This represents a juxtoposition of views that might be difficult for people to reconcile (unless they see the current bad news as a temporary one). The McGladrey survey, for instance, finds that 90 percent of its respondents have a favorable view of the business environment and over half want to hire new workers in the next 12 months. This is positive news that hopefully bodes well for future releases regarding manufacturing, production, and employment.