(What’s Left of) Our Economy: U.S. Manufacturing’s Productivity Lag Keeps Worsening

Tags

Labor Department, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, {What's Left of) Our Economy

They’re not as exciting as the trade data and the jobs data these days. In fact, they rarely generate any excitement. And this year, they had the misfortune of coming out on the 75^th anniversary of D-Day. All the same, last Thursday’s second set of government figures on labor productivity for the first quarter of this year matters because it strengthened the case for a disturbing trend: Although this measure of efficiency – and indirectly, success in fostering healthy growth and sustainably rising living standards – confirmed the initial encouraging results for the economy as a whole, manufacturing’s laggard status looks worse than ever..

As RealityChek regulars know, the labor productivity measured in last week’s report is the narrower of the two productivity gauges regularly published by the Department of Labor. As opposed to multi-factor productivity, which measures how much in the way of a variety of business inputs is needed to generate a unit of output, labor productivity only tells us how much each hour of work put in by an employee achieves that result. But the labor productivity figures come out on a timelier basis, so they’re understandably watched closely.

The release’s headline figure confirmed the solid labor productivity gain originally reported for the first quarter in the “non-farm business” sector – the Department’s definition of the American economic universe when it comes to productivity. Although the 3.4 percent annualized sequential rate of improvement was a little slower than the first 3.6 percent estimate, it remained the best such result since the 3.7 percent recorded for the third quarter of 2014. Moreover, it still left labor productivity growth accelerating since the third quarter of last year.

For manufacturing, however, the first quarter’s sequential labor productivity increase was revised way down – from a pretty good 1.7 percent to a dismal 0.4 percent.

Even worse, whereas non-farm business productivity improved because both output and hours worked rose (the productivity gain recipe we want to see), the much smaller increase for manufacturing stemmed from hours worked dropping even faster than output (the productivity gain recipe we don’t want to see).

As a result of this poor manufacturing performance, the labor productivity gap between industry and the rest of the economy has been widening – and not in a good way for industry. Here’s an updated table showing the total labor productivity gains for non-farm businesses and for manufacturing during the two previous economic expansions and the current expansion (in order to ensure apples-to-apples comparisons).

                                                               Non-farm business       Manufacturing

1990s expansion (2Q 1991-1Q 2001):     +23.74 percent         +45.86 percent

bubble expansion (4Q 2001-4Q 2007):    +16.59 percent        +30.23 percent

current expansion: (2Q 2009 to present): +12.18 percent          +9.59 percent

It’s worrisome enough that the non-farm business increases have been decelerating since the 1990s expansion. But the extent of the manufacturing slowdown has been nothing less than shocking. Indeed, during the current recovery, manufacturing has clearly lost its labor productivity leadership status – and by a considerable margin.

Alternatively put, even though the 1990s expansion and the current expansion have lasted roughly the same amount of time, the rise in non-farm labor productivity during this recovery has been only about half as fast, and that for manufacturing only about a fifth as fast.

American manufacturing has shown some important signs of revival under President Trump – especially in job creation and output (at least until recently). But whatever the results of Mr. Trump’s trade wars, unless its labor productivity performance improves dramatically, its comeback will remain sorely incomplete.

Advertisements

(What’s Left of) Our Economy: A Sort of Mixed U.S. Productivity Report

Tags

labor productivity, manufacturing, non-farm business, productivity, {What's Left of) Our Economy

This morning’s government report on labor productivity for the first quarter of this year contained a valuable reminder that this measure of the economy’s efficiency – and indirectly, its success in fostering healthy growth and sustainably rising living standards – can improve for good and not-so-good reasons. And the complicating factor in an otherwise strong set of data came in manufacturing.

Labor productivity, as RealityChek regulars know, is the narrower of the two productivity gauges regularly published by the Department of Labor. As opposed to multi-factor productivity, which measures how much in the way of a variety of business inputs is needed to generate a unit of output, labor productivity only tells us how much each hour of work put in by an employee achieves that result. But the labor productivity figures come out on a timelier basis, so they’re understandably watched closely.

As suggested above, the overall figures were encouraging. For non-farm businesses (the Labor Department’s U.S. economy universe), labor productivity rose by 2.40 percent between the first three months of 2018 and the first three months of this year. That was the best such performance since the third quarter of 2010 (2.70 percent), and especially good news since that previous mark came much earlier in the current business cycle (i.e., much sooner after the end of the last severe recession), when robust productivity gains are generally easier to generate.

Moreover, these labor productivity advances have accelerated sequentially since the third quarter of last year.

In addition, on a quarter-to-quarter basis, the first quarter’s 3.60 percent increase at an annual rate was this metric’s best performance since the 3.70 percent rise in the third quarter of 2014.

Manufacturing’s 1.20 percent productivity improvement over the first quarter of 2018 wasn’t stellar, but pretty much in line with recent readings. The new quarter-to-quarter reading, though, was solid; industry’s labor productivity was up 1.70 percent annualized – the best such performance since the 4.40 percent pop in the fourth quarter of 2017. And the rate of increase here had sped up since the third quarter of last year as well.

The fly in the ointment concerns why first quarter manufacturing labor productivity even rose at that solid quarter-to-quarter pace. A big part of the reason was that manufacturing output fell during this period – by one percent at an annual rate. In other words, the sector reduced the number of hours its workers worked, but it also saw production fall – just more slowly. That result is certainly better than output falling just as fast or faster than hours worked. But it doesn’t qualify as “good.”

The latest sequential manufacturing annualized output decrease is the first since the 1.50 percent decline in the third quarter of 2017 (when the sector’s productivity sank by a recessionary 4.40 percent at an annual rate). Industry’s labor productivity rebounded sharply in the following quarter (by 4.20 percent annualized, while output shot up by 5.70 percent). So maybe this latest lousy output number is just another bump in the road.

But it’s that combination that represents the best possible labor productivity outcome: Both output and efficiency rising at the same time.

It’s also important to remember, however, that both the economy overall and the manufacturing sector still aren’t close to returning to their labor productivity performances of the recent past. Here are the updated comparisons between the current recovery, and its two most recent predecessors:

                                                                 Non-farm business     Manufacturing

1990s expansion (2Q 1991-1Q 2001):       +23.74 percent         +45.86 percent

bubble expansion (4Q 2001-4Q 2007):      +16.59 percent        +30.23 percent

current expansion (2Q 2009 to present):    +12.17 percent          +9.96 percent

The newest quarterly figures brighten the picture slightly. But boasting about the U.S. economy should definitely be muted until these productivity numbers start turning around dramatically.

(What’s Left of) Our Economy: Manufacturing’s Productivity Leaders Continue to Surprise

Tags

aerospace, aluminum, appliances, Bureau of Labor Statistics, durable goods, labor productivity, manufacturing, non-durable goods, pharmaceuticals, productivity, semiconductors, steel, {What's Left of) Our Economy

One of my favorite sets of U.S. government statistics came out this morning – “Productivity and costs by industry: manufacturing and mining industries.” However boring it sounds, it’s useful because it sheds lots of light on which specific sectors within domestic American manufacturing should be seen as winners and losers or “industries of the future” (presumably the productivity stars) versus smokestack and other allegedly outmoded types of activity (the productivity laggards).

In addition (and this will be covered in an upcoming post), these detailed figures on manufacturing labor productivity (the narrowest of the two types of productivity tracked by the feds, but the measure that comes out on the timeliest basis) go far toward showing whether job loss in manufacturing lately has mainly been due to trade and globalization, or to industry’s improved efficiency. This debate of course has long been near or at the heart of the broader, decades-long debate about the effectiveness of American trade policies.

First let’s look at the overall numbers – which are anything but flattering to manufacturing. According to the Bureau of Labor Statistics (which compiles these data), in 2018, when manufacturing’s labor productivity as a whole rose by 0.80 percent, it fell in absolute terms in 67 out of the 86 sectors examined. That was a worse performance than in 2017. Even though that year, overall manufacturing labor productivity improved by slightly less (0.70 percent), it decreased in 54 of those 86 industries.

Broken down by super-categories, in 2018, in the 51 durable goods industries followed by the Bureau, labor productivity declined in 41. In the non-durables super-sector, labor productivity dropped in 26 of 35 sectors studied. For 2017, the comparable numbers were 34 of 51 and 20 of 35, respectively.

Even more interesting, in my view, are the results for these 86 individual industries. First, the ten best labor productivity performers in 2018 and their annual percentage gains. As you’ll see, the list that isn’t exactly dominated by advanced technology, at least according to the most popular definitions and portrayals. (FYI, “magnetic media” are a fancy name for products like audio tapes and compact disks – which this aging baby boomer is constantly told are hopelessly outdated.)

magnetic media mfg & reproducing:               +9.1 percent

computer & peripherals mfg:                          +7.7 percent

leather/hide tanning & finishing:                    +6.5 percent

grain & oilseed milling:                                  +5.3 percent

miscellaneous textile product mills:               +5.2 percent

turbine & power transmission equip:             +4.6 percent

resin, rubber, & artificial fibers:                    +3.5 percent

cut and sew apparel:                                      +3.2 percent

agricultural chemicals:                                  +2.2 percent

miscellaneous transport equip:                      +2.1 percent

And here’s a list of the 2018’s ten worst labor productivity performers. Most appear to be “lower tech.” But look at aerospace at Number Five! That’s the economy’s biggest trade surplus winner! The huge automotive sector had a terrible labor productivity year, too.

lime & gypsum products:                             -11.8 percent

textile fabric & finishing mills:                    -11.3 percent

motor vehicle bodies & trailers:                  -10.1 percent

sawmills & wood preservation:                    -9.5 percent

aerospace products & parts:                         -8.1 percent

petroleum & coal products:                         -7.8 percent

motor vehicles:                                            -7.6 percent

sugar & confectionary products:                 -7.1 percent (tie)

apparel knitting mills:                                 -7.1 percent (tie)

audio & video equipment:                           -6.9 percent

beverages:                                                    -6.1 percent

Finally, here are some labor productivity numbers for some manufacturing sectors of special interest. Pharmaceuticals seems a logical choice to kick it off, given the role that healthcare and drug-pricing issues have been playing lately in national policy and political debates. Its 2018 labor productivity fall-off indicates that if the industry improved its efficiency, it wouldn’t need such sky-high prices for many of its products to achieve what it considers adequate profitability. 

pharmaceuticals & medicines:                    -3.4 percent

iron & steel mills & ferroalloys:                 -2.4 percent

alumina & aluminum production:               -2.3 percent

household appliances:                                +1.6 percent

The next three sectors have been prominent in trade policy controversies. The two metals sectors faltered on the labor productivity front last year. (In 2017, both produced considerably better results). But if you look at their labor compensation costs (also provided in today’s productivity release), you’ll see that they’ve at least shared many of the benefits of the protective tariffs they’ve received with their workforces.

Such compensation rose by 7.2 percent for iron and steel-makers, and five percent for the aluminum industry. Both increases handily beat the 1.70 percent average for all manufacturing, and the 1.40 percent for durable goods production.

Household appliances – which include tariff-ed large household laundry machines) – turned in the opposite performance. Labor productivity was up at a relatively strong pace. But labor compensation was off by 2.20 percent. (Even more unusual, its labor productivity fell in 2017, while labor compensation surged.)

Finally, let’s examine the semiconductor sector, since it’s commonly described as a main “building block” of the entire high tech portion of the American economy. In 2018, its labor productivity fell (by 1.20 percent) – and for the third straight year. But here, labor compensation was way up (by 5.60 percent).

Intellectually honest economists will admit that measuring productivity is one of their most challenging tasks. But it’s also inescapable.  And the new detailed manufacturing labor productivity data make clear that identifying the nation’s most and least valuable and promising manufacturing industries remains just as challenging. 

(What’s Left of) Our Economy: U.S. Productivity Growth Improves, but Remains Historically Weak

Tags

Bureau of Labor Statistics, labor productivity, multi-factor productivity, productivity, {What's Left of) Our Economy

Throughout the NCAA men’s college basketball tournament that began today, productivity across America is supposed to swoon, as fans in droves periodically shunt aside work to see how their picks in office betting pools are faring. According to the federal government, however, it’s possible that the March Madness effect last year wasn’t major. For the latest data on the broadest measure of productivity tracked by the federal government just revealed the best annual improvement since 2010.

Yesterday, the Bureau of Labor Statistics (BLS) reported on the status of multi-factor productivity in the United States – which measures how much of a given unit of output is being created through the use of a wide range of inputs, including labor, capital, energy, materials, and the findings from research and development. As a result, it’s a more comprehensive gauge of efficiency than the labor productivity statistics, which come out on a timelier basis, but simply show how many worker hours are needed to produce a given unit of output.

The one percent improvement in multi-factor productivity achieved between 2017 and 2018 for private non-farm businesses (the headline figure) may sound pretty modest. And it’s certainly been eclipsed frequently since BLS began calculating these figures in 1988. But the 2018 gain was the strongest since the 2.6 percent surge at the start of the decade. And that previous performance needs to be understood in context, since it came near the beginning of the current economic recovery, a stage of the business cycle when productivity growth tends to be strong.

Because these multi-factor productivity data are only kept on an annual basis, it’s not possible to compare with pinpoint accuracy how such efficiency improvements in the United States are taking place during the current recovery versus its predecessors. (After all, recessions and expansions usually don’t conveniently start and end in at the beginning or close of calendar years.) Yet a rough sense of the trends can be discerned from the following table, which uses the calendar years marking turns in the business cycle:

1990s expansion (2Q 1991 to 1Q 2001):           +10.61 percent

bubble expansion (4Q 2001 to 4Q 2007):            +7.37 percent

current expansion (2Q 2009 to present):              +5.40 percent

Especially considering that the current expansion has been much longer than its immediate predecessor, and nearly as long as the 1990s expansion, U.S. multi-factor productivity growth has clearly experienced a big slowdown. With productivity growth widely seen as a key to boosting national living standards on a sustainable (as opposed to bubble-ized) basis, that’s troubling. So however encouraging the 2018 increase is, there’s no doubt that the nation has its work cut out in order to make productivity growth great again.

(What’s Left of) Our Economy: Pssst! Some Good News on Productivity!

Tags

Labor Department, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, total factor productivity, Trump, {What's Left of) Our Economy

Here’s a peculiar new twist in ongoing media coverage and more general establishment commentary on the U.S. economy: The conventional wisdom among both these intertwined crowds holds that the American trade deficit doesn’t matter much economically. Yet the apparently poor trade numbers reported yesterday by the Census Bureau was the talk of these towns.

The conventional wisdom held by the establishmentarians also holds that productivity is incredibly important. Indeed, it’s widely described as a key to future prosperity. But the improving productivity figures released today by the Labor Department were virtually ignored.

Of course, a moment’s reflection reveals why. President Trump has made a very big deal out of the need to reduce the trade deficit, and the newest data indicate he’s failing. (Special note: You’ll be hearing more from me on this score very soon.) But Mr. Trump has said nothing about productivity. (That’s actually typical for politicians.) So even had the statistics been poor, there would have been no opportunity for a mass “Gotcha!” festival.

These latest numbers concern labor productivity which, as known by RealityChek regulars, is the narrowest of two productivity measures tracked by the Labor Department. But they’re also published in a much more timely fashion than the total factor (also called multi-factor) productivity statistics, which as their name implies, require collecting more information in order to calculate.

The improvement is most apparent upon examining recent annual changes in labor productivity (which tells us how many units of output a single person working for a single hour can turn out). The new figures bring the story up to the end of 2018, and show a year-to-year gain in the fourth quarter of 1.90 percent for non-farm businesses – the Labor Department’s American economic universe when it comes to productivity.

That increase may not sound like much, but it’s the biggest such advance since the first quarter of 2015 (1.60 percent), and the second biggest since the third quarter of 2010 (2.70 percent). And the trend has been upward since the second half of 2015.

Manufacturing’s labor productivity performance wasn’t quite so good. For the fourth quarter of 2018, it rose at a 1.00 percent annual rate. That increase represented a slowdown from the third quarter’s 1.50 percent. But even though industry’s productivity has been climbing only sluggishly in general since the beginning of 2016, that’s represented a major and positive change from the end of 2014 through 2015 – when manufacturing labor productivity fell on-year for five straight quarters.

Nonetheless, no one should assume that all’s well with labor productivity in America, either for non-farm businesses or for manufacturers. In fact, as the table below makes clear, the nation remains smack in the middle of a deep long-term labor productivity slump in relative terms. Specifically, over the last three economic expansions (the best way to measure trends over time, since it compares like stages of the business cycle), labor productivity gains for the non-farm business and manufacturing sectors have drifted steadily downward.

Especially discouraging: Although the current economic recovery is now just about as long as its 1990s predecessor, the cumulative non-farm business productivity rise for this expansion is less than half as strong. As for manufacturing, its labor productivity performance has been so weak (increasing by just over a fifth the rate of the 1990s expansion), that it’s lost its long-time productivity improvement lead.

When productivity improves strongly, all sorts of good things follow. In particular, workers’ wages can rise robustly without triggering inflation – which in an economy dominated by consumption, can help set the stage for equally vigorous, non-inflationary growth, and therefore more wealth for everyone to share. Does that sound boring to you? I’m shaking my head “No,” as well, which is why whether they keep getting overlooked or not, I’ll keep following the productivity news closely.

                                                                   Non-farm business          Manufacturing

1990s expansion (2Q 1991-1Q 2001)           +23.74 percent            +45.86 percent

bubble expansion (4Q 2001-4Q 2007)          +16.59 percent            +30.23 percent

current expansion: (2Q 2009 to present):      +11.28 percent              +9.70 percent

(What’s Left of) Our Economy: Productivity Growth Slowdown Keeps a Cloud Over U.S. Manufacturing

Tags

Labor Department, labor productivity, manufacturing, non-farm business, productivity, Trump, wages, {What's Left of) Our Economy

As made clear once again yesterday by two releases of significant statistics, American manufacturing under the Trump administration remains a puzzling good news/bad news story.

Yesterday, as reported here, the Federal Reserve came out with industrial production data for July showing that domestic industry’s real output growth has sped up during the Trump Era, and remains strong even in those metals-using industries supposedly suffering because of the President’s metals tariffs. These findings are also consistent with figures showing that manufacturing employment under this administration has growing faster than overall employment – increasing its share of the latter from 8.49 percent in February, 2017 to 8.55 percent last month.

But yesterday also saw the issuance of new labor productivity data, and it contained new evidence that manufacturing has changed from a leader in U.S. labor productivity growth to a serious laggard. And that’s entirely consistent with the dismal performance being turned in by manufacturing wages lately.

The latest labor productivity figures (the narrower of the two measures of efficiency tracked by the Labor Department, but the one for which results are published on by far the timeliest basis) provide the preliminary results for the second quarter of this year. They’re the first indication of serious troubles for manufacturing. Quarter-to-quarter, industry’s labor productivity improved by 0.9 percent on an annualized basis, and that was its best such performance since the whopping 4.4 percent jump registered for the fourth quarter of last year (and which, for reasons to be discussed below, seems to have been a major outlier).

But labor productivity for all non-farm businesses (the Labor Department’s U.S. economy’s productivity universe) rose by 2.9 percent sequentially at an annual rate – its best such performance since the first quarter of 2015 (3.1 percent).

Manufacturing’s laggard status showed up in the first quarter revisions, too. Here it’s important to observe that, as of today, these numbers have been revised twice since the initial statistics were released in early May. As is normally the case, the following month, new estimates for that time period came out. But yesterday, as it not normally the case, the Labor Department’s first report on the second quarter includes sweeping revisions of the Labor Department data that go back all the way to 1947! And these include yet another set of figures for the first quarter.

So here’s how the estimates of sequential annualized labor productivity growth have changed since May:

                                             Non-farm business   Manufacturing (both annualized)

1Q 2018 preliminary                    +0.7 percent                     +0.5 percent

1Q 2018 1^st revision                     +0.4 percent                      -1.2 percent

1Q 2018 final (for now!)             +0.3 percent                       -1.0 percent

2Q 2018 preliminary                   +2.9 percent                       +0.9 percent

Any way you cut it, manufacturing’s recent labor productivity growth has trailed that of all non-farm businesses. And since manufacturing is a part of that non-farm business category, non-manufacturing non-farm businesses exceeded manufacturing’s labor productivity growth by an even wider margin.

Now let’s perform the same exercise looking at labor productivity growth for the last three economic recoveries (including the current, ongoing expansion). As known by RealityChek regulars, comparing similar stages of the economic cycle is the best way to get the most reliable long-term insights.

                                                                      Non-farm business     Manufacturing

1990s expansion (2Q 1991-1Q 2001) last pre-big revision estimate:

                                                                        +23.25 percent           +45.86 percent

1990s expansion latest:                                  +23.77 percent                    same

bubble expansion (4Q 2001-4Q 2007) last pre-big revision estimate:

                                                                      +16.03 percent            +30.23 percent

bubble expansion latest:                                +16.60 percent                     same

current expansion: (2Q 2009 to present): (as of preliminary 1^st quarter estimate)

                                                                         +9.70 percent            +9.69 percent

as of first 1^st quarter revision:                          +9.62 percent            +8.28 percent

latest (as of big revision 1^st quarter estimate)  +9.43 percent            +8.36 percent

2d quarter preliminary estimate:                    +10.21 percent            +8.61 percent

The bottom line here: The latest big revision confirms earlier findings that during the current recovery, manufacturing has lost its labor productivity lead, mainly because its labor productivity growth has slowed down compared with that of previous recoveries much more dramatically than the labor productivity growth in non-farm businesses.

As of the first quarter, this relative manufacturing slowdown was not quite as significant as previously thought. But the preliminary second quarter figures show that it’s regained major “momentum.”

Measuring productivity growth if of course still one of the most controversial exercises in economics. But it’s also still the case that the profession hasn’t come up with an alternative that’s attracted widespread support. So the safest assumptions continue to be that American manufacturing’s productivity slump is dragging on, and that until it’s reversed, American manufacturing wages will keep disappointing.

(What’s Left of) Our Economy: Manufacturing Labor Productivity Growth is Looking Like an Endangered Species

Tags

Bureau of Labor Statistics, Federal Reserve, Jerome Powell, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, recovery, {What's Left of) Our Economy

Federal Reserve Chair Jerome Powell stated yesterday that the U.S. economy is doing “very well.” Judging by the metrics that the central bank is supposed to focus on as a matter of law – inflation and the headline unemployment rate – that’s an eminently respectable claim. Based on another key measure of economic performance – labor productivity – it looks like whistling in the dark.

As known by RealityChek regulars, strong productivity growth is widely seen by economists as the best guarantor of sustainable future prosperity and rising living standards. And as also known, labor productivity is the narrower of the two such measures of economic activity tracked by the federal government.

But it’s the gauge that’s updated on the most timely basis, and the latest numbers – which came out last week – should be spurring alarm, not complacency.

These final (for now) results for the first quarter of this year both confirmed that output per person hour worked for the non-farm business sector (the broadest definition of the U.S. economy used in these studies) remains stuck in an historically slow-growth phase, and showed that labor productivity in manufacturing may be shifting into contraction.

The labor productivity performance of both these major sectors was revised down in the latest release from the Bureau of Labor Statistics (BLS). Rather than having grown by 0.70 percent on an annualized basis sequentially in the first quarter, labor productivity for non-farm businesses is now estimated to have advanced by only 0.40 percent. And in manufacturing, a 0.50 percent annualized increase is now judged to have been a 1.20 percent decrease. That’s its third such drop in the last five quarters.

A glass-half-full analysis would point out that the new non-farm business figure was better than that for the fourth quarter of last year (0.30 percent), and that the manufacturing fall-off followed a 4.20 percent fourth quarter jump.

But the new BLS report also presented manufacturing revisions going back to 2008, and they make clear that its labor productivity performance during this period has been far worse than even previously thought. (And it was already really bad.)

Let’s concentrate on how the new statistics have changed the picture for manufacturing labor productivity during the current recovery, and compare those results with those for previous recoveries – since such analyses yield the best, apples-to-apples, results.

Before the new data came out, manufacturing labor productivity during this expansion was reported to have grown by a total of 9.69 percent. That was less than a third of the rate achieved during the recovery of the early 2000s – which was also known as the Bubble Recovery that helped trigger the financial crisis and ensuing recession, and which last only six years versus. The current recovery is approaching its ninth anniversary.

And during the nearly ten-year long expansion that began in the early 1990s, manufacturing labor productivity surged even more strongly – by 45.86 percent.

The new manufacturing labor productivity growth number for the current expansion? Only 8.28 percent! That’s a downgrade of more than 14.50 percent!

Moreover, although the non-farm business labor productivity growth rate for the current recovery wasn’t revised down nearly as much – from 9.70 percent to 9.62 percent. But this figure, too, pales next to those of previous recoveries. During the bubble expansion, non-farm business labor productivity rose by a total of 16.03 percent. During the 1990s expansion, the rate was 23.25 percent.

By the way, don’t put too many hopes in the broader productivity measure – multi-factor productivity – to come to the rescue. Those numbers haven’t been much better.

Some productivity students have been arguing that it’s only a matter of time, and that recent technological advances will soon start super-charging productivity growth after a slow start just as they did in an earlier era of transformative technological change – the 1920s.

These optimists had better be right. Because if not, the only way to return American growth and living standards gains to their historic rates of improvements will be to flood the economy with credit in order to crank up spending. Feel free to scream if the date “2008” means anything to you.

(What’s Left of) Our Economy: Industries Claiming Labor Shortages are Productivity as Well as Wage Laggards

Tags

compensation, Labor Department, labor productivity, labor shortages, productivity, restaurants, trucking, wages, {What's Left of) Our Economy

The labor shortage claims from American businesses keep filling the media (even though wages, which are supposed to rise sharply in such circumstances, are improving only sluggishly). So it was more than a little interesting to look over the latest statistics on labor productivity released by the Department of Labor.

After all, companies and industries really facing dire labor shortages, and unwilling or unable to raise wages, are supposed to boost their productivity (generally by introducing labor-saving devices and practices). But the new Labor Department numbers show that they’re doing surprisingly little on this front, either.

Let’s examine two sectors of the economy that say with special vigor that they’re running out of workers: trucking and restaurants.

According to a typical account (from yesterday’s Washington Post), American trucking companies are facing “an extraordinary labor shortage” and their CEOs (including industry veterans) are saying things like “I’ve never seen it like this, ever….It doesn’t matter what the load even pays. There are just not drivers.”

The sector does appear to be raising pay. But not until the last two years have its overall employment costs been rising faster than those for the private sector overall – and the latter’s increases have hardly impressed. These data cover the entire transportation and warehousing sector, but after shooting up from a 2.1 percent annual pre-inflation pace to four percent (between the fourth quarters of 2011 and 2012), total compensation advances slowed to 2.3 percent annually during the next two years, and then to 2.2 percent in 2015 before accelerating.

Moreover, trucking industry productivity growth hasn’t been world-beating, either. The Labor Department reported last week that its overall gain in labor productivity (the narrower of two productivity growth measures tracked by Labor, but the one whose data is more up to date) in 2017 was 0.8 percent. A comparable figure for services industries in general isn’t available, but the Department does track labor productivity for non-farm businesses and for manufacturing.

Since labor productivity productivity for the former increased by 1.3 percent in 2017 and only 0.4 percent in manufacturing, it seems safe to conclude that services sector labor productivity grew by more than 1.3 percent – and therefore much more than trucking’s 0.8 percent. Nor does this picture change much going back to 2013.

Further, a remarkably similar pattern emerges upon examining the restaurant business. Labor shortages are widely claimed and reported, along with examples of the industry starting to improve compensation practices. New technologies are also apparently being tried to improve efficiency in the sector. But according to the data, these responses to the purported shortage of workers have been belated at best.

For example, as with trucking, annual total compensation gains in the accommodation and food services sectors (no restaurant-specific numbers are available) trailed those for the overall private sector for several years until 2016. And their owners and lobbyists have been making labor shortage claims for at least that long.

Data for restaurants (and bars) specifically are available for their labor productivity, and their performance here is only roughly comparable to the dreary results for non-manufacturing non-farm businesses.

Industries like trucking and restaurants may indeed not be able to choose their employees from as many applicants as they would like, or from numbers to which they’ve become accustomed. But if they haven’t been doing anything special, at least until recently either to hike pay, improve productivity, or both, then several explanations are possible. Maybe they’re waiting for another wave of wage-depressing legal and illegal immigrants to save their days without the need to fatten paychecks of invest in new plant and equipment. Maybe they’re don’t know how to improve productivity in particular, in which case, their businesses simply may not be viable, or they’re simply lousy managers.

But unless the Labor Department figures are completely off-base, one explanation we can rule out completely is that, as groups, they’re utterly desperate for workers.

(What’s Left of) Our Economy: America’s Productivity Blahs Continue

Tags

bubble decade, Financial Crisis, Great Depression, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, {What's Left of) Our Economy

Although productivity is widely seen by informed students of the U.S. economy as the biggest key to ensuring the nation’s prosperity over the longest run, the release of the government’s new figures on these measures of efficiency rarely generates many headlines. Last week was no exception, but as always, they’re worth considering in detail.

In this case, last Thursday’s new report on labor productivity – the most current but narrower of the two measures  — were most notable not for the preliminary estimate of the results for the first quarter of this year (which we’ll summarize below), but for revisions going back to 2013. And unfortunately, these resulted in little change to the feeble performance already reported in creating a unit of output per each person hour worked. Indeed, for manufacturing, the revisions amounted to a not-negligible downgrade.

Here are the two sets of figures for annual percentage gains in labor productivity between 2013 and 2017 for the non-farm business sector – the government’s main proxy for the entire American economy.

  Previous results                                                              Revised results

2013 +0.3 percent                                                               +0.3 percent

2014 +1.0 percent                                                               +1.0 percent

2015 +1.3 percent                                                               +1.2 percent

2016  -0.1 percent                                                                          0

2017 +1.2 percent                                                                +1.3 percent

Like I said, no important differences here. In fact, on net, the revisions brighten the picture marginally. Not so for manufacturing:

  Previous results                                                                Revised results

2013 +0.9 percent                                                                 +0.9 percent

2014    0                                                                                        0

2015 +0.2 percent                                                                 +0.3 percent

2016 +0.4 percent                                                                 -0.4 percent

2017 +0.7 percent                                                                +0.4 percent 

Here we see a marked weakening, especially for the last two years. And the extent of manufacturing’s lousy record is even clearer from comparisons among the current economic recovery and its two predecessors.

non-farm business                                                                  manufacturing

90s expansion: (2Q 1991 to 1Q 2001) +23.25 percent          +45.86 percent

bubble expansion (4Q 2001 to 4Q 2007) +16.03 percent      +30.23 percent

current expansion: (2Q 2009 to present)  +9.70 percent          +9.69 percent

Not only has labor productivity growth slowed much more dramatically in manufacturing than in the rest of the economy between the expansion of the 2000s – which of course ended in the worst national and global financial crisis since the Great Depression — and the current expansion. Manufacturing labor productivity actually has been growing more slowly in absolute terms during this recovery than non-farm business labor productivity. And it’s not as if non-farm business labor productivity has been killing it.

Those preliminary results for the first quarter of this year extend this narrative. On a quarter-to-quarter basis, both non-farm business labor productivity and manufacturing labor productivity increased – by 0.7 percent and 0.5 percent at an annual rate, respectively. But the revisions revealed a major slowdown in manufacturing labor productivity growth on a quarterly basis (from a downwardly revised — and kind of fishy — 4.5 percent on an annual basis) and a slight pickup in non-farm business productivity growth (from no growth at all at the end of last year).

The latest results for the broader measure of productivity growth – multi-factor productivity, which includes a range of inputs broader than just worker hours – showed a small uptick, too. So even though they’re not as current as the labor numbers, maybe we’re seeing the beginnings of lasting improvement in productivity growth generally speaking. But as the recovery-to-recovery data still make clear, the United States still has a long way to go before it genuinely shakes off its productivity blahs.

(What’s Left of) Our Economy: Puzzling New Glimpses into U.S. Manufacturing

Tags

Bureau of Economic Analysis, Bureau of Labor Statistics, Commerce Department, durable goods, Labor Department, labor productivity, manufacturing, non-durable goods, productivity, real value-added, {What's Left of) Our Economy

Two important sets of economic statistics came out today that shed lots of new light on the health of American manufacturing. Unfortunately, little of it is especially encouraging. In fact, some of it’s pretty mystifying.

The Commerce Department’s Bureau of Economic Analysis issued its annual report on the growth rates of different sectors of the U.S. economy. The main manufacturing finding: Industry’s annual growth rate did pick up last year according to a measure called real value-added (which leads off the report, and which attempts to eliminate the double-counting of output that occurs when broader gauges fail to distinguish between final products on the one hand, and their parts, components, and other inputs on the other). Yet the acceleration from a 0.5 percent yearly expansion in 2016 to 2017’s 1.9 percent trailed that output increase of the economy as a whole – which improved from 1.5 percent to 2.3 percent. As a result, the economy became slightly more manufacturing light in 2017.

In addition, within manufacturing, growth leadership shifted dramatically. Whereas the non-durable goods super-sector outperformed its larger durable goods counterpart in 2016 (with the former’s real value-added improving year-on-year by 1.2 percent while the latter’s slipped by 0.2 percent), durable goods rebounded to a 3.4 percent annual growth rate in 2017 while non-durables’ real value-added inched up by just 0.1 percent.

The American economy’s overall growth leader in 2017 in real value-added terms? The mining sector, which jumped by 8.5 percent after plummeting by 13.3 percent the year before. The next fastest-growing industries were administrative and waste management services (4.9 percent), corporate management (4.6 percent), and information services (four percent even).

Today’s second data set (from the Labor Department’s Bureau of Labor Statistics) shows which sectors within manufacturing last year excelled in terms of labor productivity (the narrower of economists’ two main measures of efficiency), and which lagged and, once more, many of the results were surprising. (We already know that industry in toto had a dreary labor productivity year last year.) For instance, computer and computer peripheral equipment led the way last year, generating eleven percent more output per employees hour worked. But next came apparel knitting mills, at 10.5 percent, followed by agriculture, construction, and mining machinery at 10.4 percent, and cutlery and handtools at 9.4 percent.

The biggest productivity loser in 2017? Miscellaneous transportation equipment, where it nosedived by 11.5 percent. In ascending order, the next worst performers were electric lighting equipment (down 9.2 percent), sugar and confectionary products (down eight percent), and beverages (down 7.8 percent).

Other manufacturing sectors whose labor productivity worsened on year in 2017? Pharmaceuticals and medicine (down seven percent), metal-working machinery (which includes machine tools – and where labor productivity declined by 1.3 percent), communications equipment (down 2.2 percent), semiconductors (down 0.7 percent), motor vehicles (down 4.1 percent), and aerospace products and parts (down 3.1 percent).

And if you’re thinking that this list of productivity losers includes lots of so-called industries of the future, you’re of course right. Kudos also if you’ve noted that aerospace is the economy’s biggest trade surplus industry. It’s enough to instill a little humility in those of us who think we’re getting a handle on this gargantuan, complex American economy, or heighten for those who had some already.