Not All Productivity Changes Created Equal

By Andrew Paparozzi
In May 21, 2009

According to the Bureau of Labor Statistics (BLS), productivity for the nonfarm business sector (defined as output per hour) was 1.8% higher in the first-quarter of 2009 than a year ago. Productivity gains are usually associated with helping to hold the line on unit labor costs by producing more for each hour of labor. But be careful, as we all know, on the surface statistics can be misleading. The first-quarter increase resulted because a drop in total hours (-5.8%) outpaced the drop in output (-4.1%). Data show that unit labor costs for the first quarter were 2.4% above a similar period a year ago—the highest year-over-year increase since the second quarter of 2007. The culprit: compensation per hour rose by 4.2%. No wonder maintaining profitability is such a significant challenge, especially when there’s an absence of pricing power. The components that go into determining productivity and unit labor costs make a difference—we shouldn’t just focus on the purely statistical calculation—not all productivity changes are created equal.

What about the manufacturing sector? BLS data show that results for productivity and unit labor costs were vastly more adverse for the overall manufacturing sector. Productivity fell 3.3% in the first quarter from its level of a year ago. A steep drop in output (-14.0%) outpaced the sizable drop recorded in hours (-11.1%). Unit labor costs skyrocketed 11.5%, as compensation per hour in manufacturing jumped 7.9%.

What about print? The BLS only publishes industry data annually, and the latest available for the printing industry is for 2006. Nonetheless, we know that production hours are being slashed. According to BLS data, total production hours in the commercial printing industry were down 14.2% in the first quarter from a year ago. Over 80.0% of the NAPL Printing Business Panel reported in April that their factory payroll hours were lower than a year ago—only 4% reported that hours increased. Despite the drop in hours, 41.5% of the Panel report that productivity is lower—a year ago the percent reporting lower productivity was 23.3%. A major reason for the deterioration, volume/output also was lower for almost 80.0% of the Panel. Judging from the plunge in commercial printing industry sales—almost 15.0% during the first quarter— it would appear that the overall drop in output is outpacing the decline in hours. In these difficult times for the printing industry, managing factory productivity and costs is especially critical, and being able to continuously monitor performance is vital. NAPL Performance Indicators can provide valuable assistance in this area.

Andrew Paparozzi        Joseph Vincenzino        Kong Lue Wang

Andrew Paparozzi

Epicomm's Andrew Paparozzi, Vice President/Chief Economist, is well-known for his accurate and thoughtful discussions on the economy and US commercial printing industry. A foremost author and speaker on economic business trends in the printing industry, Paparozzi heads Epicomm's Printing Economic Research Center.

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