The Bureau of Labor Statistics reported that labor productivity in the first quarter for the manufacturing sector rose 3.8 percent, its fastest pace since this time last year. The primary driver of the increase in productivity was higher output, which jumped 5.6 percent for the quarter for manufacturers. At the same time, hours rose just 1.7 percent, allowing overall unit labor costs to fall by 0.5 percent. These findings suggest that there has been some progress for manufacturing in terms of output and productivity in the past two quarters, an improvement from the weaker output experienced in the middle of last year.
Moreover, these benefits flowed through to both durable and nondurable goods businesses. Labor productivity for durable goods manufacturers rose 3.7 percent on output gains of 6.5 percent for the quarter; whereas, nondurable goods firms had a labor productivity increase of 4.6 percent on 4.7 percent higher output. Unit labor costs declined 0.6 percent and 0.8 percent, respectively, helping to make these firms more competitive globally. This represents a nice turnaround from 2012, which saw unit labor costs rise for both sectors.
For the larger economy, the productivity changes were less dramatic. Labor productivity in the nonfarm business sector rose 0.7 percent in the first quarter, an improvement from the 1.7 percent decline experienced in the fourth quarter. The shift from negative to positive between the two quarters stemmed from better output data. Real GDP increased 2.5 percent for the quarter, as noted last week, which while below expectations was still healthier than the paltry growth at year’s end. Unit labor costs for the nonfarm economy rose 0.5 percent, slowing from the 4.4 percent growth rate experienced the prior quarter.
Chad Moutray is chief economist, National Association of Manufacturers.