Manufacturing Production and Productivity Have Plateaued in Recent Years
The Bureau of Labor Statistics recently reported that overall manufacturing sector labor productivity increased 0.1 percent in the third quarter of 2019.1 This is the result of output increasing 1.3 percent while hours worked increased 1.2 percent. However, total manufacturing sector productivity declined 0.1 percent over the last four quarters, as output decreased 0.5 percent and hours worked decreased 0.4 percent.
This comes as U.S. manufacturing has reached something of a plateau, with overall output having largely flatlined since recovering in the aftermath of the 2007-09 recession (Figure 1). Overall manufacturing employment currently stands at 12.865 million, up only 7.4 percent over the level of January 2013, while the rate of growth manufacturing hours works has remained at or below 2.5 percent since 2010 (Figure 3).
Productivity increased 0.7 percent in the durable goods manufacturing sector in the third quarter of 2019, reflecting a 1.8-percent increase in output per hour, combined with a 1.0-percent increase in hours worked.2 Durable goods manufacturing is the primary driver of OEM coatings demand. On the other hand, productivity decreased 0.8 percent in the nondurable manufacturing sector (which includes NAICS 32551, paint and coatings manufacturing), as output increased 0.8 percent while hours worked increased 1.6 percent.
As shown in Figure 2, Paints, Coatings, and Adhesives manufacturing output remained strong through Q3. While Q3 output declined as compared with Q2 (a reflection of the industry’s seasonality), the overall trend was up, with year-over-year comparisons showing a rise of slightly over 2 percent.
Finally, as shown in Figure 3, unit labor costs for the overall manufacturing sector increased 3.0 percent in the third quarter of 2019 and increased 4.4 percent as compared to the same quarter a year ago. This is almost certainly the result of the increasingly tight U.S. labor market, which is seeing the lowest level of unemployment in years and increases difficulties manufacturers have in obtaining qualified workers for their production lines.
It is likely that manufacturers will continue to see relatively flat production combined with upward pressure on compensation, but this can potentially be offset with increased productivity. The likely ratification of USMCA, however, could provide some added impetus to U.S. manufacturing, particularly in the motor vehicle segment, since the trade deal is intended to increase automotive content originating in the North American market.
1 Labor productivity is a measure of economic performance that compares the amount of goods and services produced (output) with the number of hours worked to produce those goods and services.