Productivity Tale Of Two Sectors: Overall Productivity +3.0%, Manufacturing Productivity -5.0%

Productivity jumped 3.0% in the third quarter with unit labor costs up only 0.5%. In manufacturing, productivity decreased 5.0 percent and unit labor costs increased 6.2 percent.

The BLS reports nonfarm business sector labor productivity increased 3.0 percent during the third quarter of 2017. Output increased 3.8 percent and hours worked increased 0.8 percent.

All quarterly percent changes are at seasonally adjusted annual rates.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers.

Unit Labor Costs

Unit labor in the nonfarm business sector increased 0.5 percent in the third quarter of 2017, reflecting a 3.5-percent increase in hourly compensation and a 3.0-percent increase in productivity. Unit labor costs decreased 0.1 percent over the last four quarters.

The BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs, and increases in output per hour tend to reduce them.

Manufacturing

Manufacturing sector labor productivity fell 5.0 percent in the third quarter of 2017, as output decreased 2.1 percent and hours worked increased 3.1 percent. The decrease in manufacturing output per hour is the largest since the first quarter of 2009, when the measure fell 16.3 percent.

Productivity decreased 5.7 percent in the durable goods manufacturing sector and 4.6 percent in the nondurable goods sector in the third quarter of 2017.

Year-Over-Year Productivity is Anemic

Despite the third-quarter jump, year-over-year productivity is anemic.

From the third quarter of 2016 to the third quarter of 2017, productivity increased 1.5 percent, reflecting a 2.9-percent increase in output and a 1.4-percent increase in hours worked.

Here’s an opinion clip from Reuters that’s worth considering: “While the data point to a solid economy, they also reinforce the view that growth is not likely to remain strong for an extended period without improved wage gains,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “Productivity is still growing too slowly.”