What’s Up With Productivity?

By Andrew Paparozzi
In August 14, 2009

The latest data from the Bureau of Labor Statistics (BLS) show that productivity (defined as output per hour worked) in the nonfarm business sector surged at an annual rate of 6.4% in the second quarter over the first three months of the year. The jump during the April-June period reflected the continued slashing of hours (down by 7.6%), while output was cut by 1.7%. As a result, with compensation relatively flat, unit labor costs were slashed by 5.8%. Before we read too much into these “headline” numbers, keep in mind that they are annualized figures. In other words: The movement for a given period is projected out for a year. If we look at second quarter data on an actual year-over-year basis—compared to the second quarter of 2008—productivity was up 1.8%. The increase was the same as that recorded for all of 2007 and 2008. On a year-over-year basis, unit labor costs were down 0.6% in the second quarter. Companies are adjusting to the new realities, but the progress implied by the headline data may be a bit exaggerated.

In any event, BLS data show that the manufacturing sector has not fared as well. While productivity was up an annualized 5.3% in the second quarter compared to the previous three months, it was actually 1.3% below that of a year ago. The year-over-year drop in manufacturing output of -15.0% continued to surpass the corresponding cut in hours (13.9%). And, with a rise in compensation per hour of 6.0%, unit labor costs for manufacturing in the second quarter were pushed 7.4% above their year-ago level.

As for commercial print, we continue to see companies slash production hours by cutting employment and shortening the workweek. According to labor market data from the BLS, total production hours were down 15.5% year-over-year in the second quarter, compared to a 14.3% decline in the first quarter. Data from the NAPL Printing Business Panel suggests that the cutting of production hours has continued into the third quarter; with 79.0% of the panel reporting in July that factory payroll hours were below a year ago. Despite the cut in hours, only 23.0% of the Panel reported higher productivity (output per hour) compared to a year ago, while 45.2% reported that productivity was lower. But there are some hopeful signs. The percent of the Panel reporting current business conditions slowing—46.8% in July—continues to recede from the high-water mark of 75.6% in January.

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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