Manufacturing Productivity Slips From First-Quarter Levels

The overall productivity of American workers slowed in the second quarter, while productivity in the manufacturing sector also eased from levels seen in the first quarter. The Labor Department said Tuesday that productivity - the amount of output per hour of work - in the manufacturing sector increased by 3 percent in

The overall productivity of American workers slowed in the second quarter, while productivity in the manufacturing sector also eased from levels seen in the first quarter.

The Labor Department said Tuesday that productivity - the amount of output per hour of work - in the manufacturing sector increased by 3 percent in the quarter, as output increased 5.4 percent and hours grew by 2.3 percent. Production within durable goods manufacturing expanded by 3.8 percent, while nondurable goods productivity increased by 2.6 percent. In the first quarter, manufacturing productivity expanded by 3.8 percent.

Output and hours in manufacturing, which includes about 13 percent of U.S. business-sector employment, tend to vary more from quarter to quarter than data for the aggregate business and nonfarm business sectors. 

Hourly compensation of all manufacturing workers rose 1.7 percent during the second quarter, the Labor Department said, reflecting similar growth in both manufacturing subsectors. When the increase in consumer prices is taken into account, the real hourly compensation of all manufacturing workers fell 3.1 percent in the
second quarter, after increasing 3.0 percent one quarter earlier.

Unit labor costs in manufacturing declined 1.2 percent in the second quarter of 2006, reflecting decreases of 2.1 percent in durable goods industries and 1.0 percent in nondurable goods industries. 

In total, the Labor Department reported that productivity - the amount of output per hour of work - slowed to an annual rate of increase of 1.1 percent in the April-June quarter, down from a 4.3 percent rate of increase in the first three months of the year.

Meanwhile, labor costs, as measured by each unit of output, increased at an annual rate of 4.2 percent, up from a 2.5 percent rate of increase in the January-March quarter. That marked the fastest gain for unit labor costs since a 5.1 percent increase in the fourth quarter of 2004.

The data come on the heels of today's meeting of the Federal Reserve, where central bankers are widely expected to leave interest rates unchanged for the first time in about two years.

In the past decade or so, the U.S. economy has benefited greatly from the increased productivity made possible by the use of technology, particularly the Internet. When workers are more productive, companies can pay their employees more without passing that cost on to consumers. It's one of the key reasons inflation has remained in check for so long, so any decrease in productivity, especially joined by increased labor costs, would be of concern to the Fed.

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