Hurricanes Likely Reduced Manufacturing Output and Labor Productivity in the Third Quarter

The Bureau of Labor Statistics reported that manufacturing labor productivity plummeted by 4.4 percent at the annual rate in the third quarter, its first decrease in one year and the largest quarterly decline since the Great Recession. On the positive side, it was originally estimated to be a decline of 5.0 percent, with the latest revision lessening the decrease somewhat from what was originally thought. Overall, though, the data continue to reflect the damage from recent hurricanes, with output down by 1.1 percent in the manufacturing sector. At the same time, hours worked and unit labor costs in manufacturing rose by 3.5 percent and 4.8 percent, respectively. The sectoral breakdowns were similar, with labor productivity for durable and nondurable goods firms off by 4.7 percent and 4.4 percent, respectively.

It is hard to paint these data in a positive light, except to say that they are likely transitory, and we would expect a rebound in output and productivity in forthcoming data. With that said, manufacturing labor productivity was up just 0.4 percent from 2013 to 2016. The current data unfortunately continue that discouraging trend, up 0.3 percent year-over-year in this release. In comparison, the average growth rate for manufacturing labor productivity was 3.9 percent in both the 1990-2000 and 2002-2008 time frames, or the two prior economic recoveries.

There was more encouraging news in the larger economy in the third quarter. Nonfarm labor productivity increased by an annualized 3.0 percent in the third quarter, its fastest quarterly growth rate in three years and up from a 1.5 percent gain in the second quarter. Output and hours worked rose by 4.1 percent and 1.1 percent, respectively, with unit labor costs off by 0.2 percent. Similar to the manufacturing data described above, nonfarm labor productivity has slowed considerably since the Great Recession, averaging 0.6 percent per year from 2011 to 2016. With the latest increase, nonfarm labor productivity has risen by 1.5 percent year-over-year, which was an improvement from recent trends, even as it remains lower than the 2.7 percent annual growth rate average seen from 2000 to 2007.

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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