The new labor productivity numbers issued by the Labor Department this morning underscore why it’s so discouraging that domestic U.S. manufacturing is in the doldrums again – and in fact in a technical recession. Because the new figures show that manufacturing has regained its longstanding status as America’s labor productivity growth king after briefly losing it. Oddly, however, the same productivity report provides another reminder that manufacturing’s status as America’s king in pay growth is gone.
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According to the new first look at labor productivity in the third quarter, by this measure of efficiency, all of America’s non-farm businesses (the Labor Department’s universe of American businesses) improved by 1.60 percent at an annual rate over the second quarter. That’s pretty low by historical standards, buttressing growing claims that the nation’s productivity performance has been lagging lately. But the second quarter growth figure was revised up from a much better 3.30 percent to a better still 3.50 percent.
(Remember – labor productivity is one of two productivity measures tracked by the government. It gauges output nationwide, and by different sectors of the economy, per total hours worked. The other productivity measure is multi-factor productivity. As its name suggests, it examines a much broader range of inputs, including capital, energy, and materials. Another big difference – the labor productivity numbers come out each quarter, but the multi-factor productivity data take a good deal longer to calculate.)
By contrast, labor productivity in manufacturing between the second and third quarters zoomed up at a 4.90 percent annual rate. That’s by far the best such result since the 6.60 percent recorded in the first quarter of 2011, much earlier in the current economic recovery, when such strong gains tend to be par for the course because they follow declines or very slow growth during recessions. This result was so good that it overshadowed the downward revision to manufacturing’s labor productivity growth during the second quarter. That figure, originally pegged at 2.30 percent, is now judged to have been 2.10 percent. And significantly, it unusually trailed the productivity growth for the economy as a whole.
Year-on-year, manufacturing’s relative labor productivity performance looks even better. From the third quarter of last year to the third quarter of this year, manufacturing labor productivity increased by 1.50 percent. That’s also low historically speaking, but it’s much faster than the rounding-error 0.40 percent growth registered by all non-farm businesses. In the second quarter, manufacturing held the edge here, too, but it was narrower – 1.00 percent versus 0.80 percent.
The real hourly compensation statistics published along with the productivity numbers tell a much different story, however. On a quarter-to-quarter basis, the growth of manufacturing’s inflation-adjusted pay did leave that of non-farm businesses in the dust – by 4.20 percent to 1.40 percent. But year-on-year, even though manufacturing outperformed the rest of the economy productivity-wise, too, its real pay gains lagged – 1.80 percent versus 2.20 percent.
In fact, since the last recession ended, in the second quarter of 2009, non-farm business labor productivity has grown by a total of 6.94 percent, and its after-inflation compensation is up 2.15 percent – which certainly supports the widespread view that American workers haven’t enjoyed enough of the benefits of working better. But in manufacturing, the situation has been even worse for workers. Its productivity is up 24.97 percent. But its real compensation has actually fallen – by 1.41 percent.
As I’ve written consistently in my productivity posts, both labor and multi-factor productivity are subjects where even normally supremely confident economists often fear to tread, and many critics charge that the U.S. government figures grossly understate America’s performance – and even that the mis-measurement keeps worsening. I haven’t examined these accusations completely enough to decide if they’re on target. But given the vital role played by productivity growth in fostering higher living standards on a sustainable, not bubbly, basis, if the Labor Department’s findings are even remotely accurate, they’re warning that fostering a real renaissance in America’s productivity-leading manufacturing sector is more important than ever.