July 1, 2020 Confusing but Overall Downbeat News on Productivity

A look at the U.S. manufacturing labor productivity statistics for 2019 released last week, a confusing mix of halfway decent and bad news.

By Alan Tonelson

I wish I could say that the detailed U.S. manufacturing labor productivity statistics for 2019 that came out late last week provided a clear, pre-CCP Virus picture of domestic industry’s health, and especially insights into how well manufacturing was holding up during the ongoing U.S.-China trade war. Unfortunately, the sector-by-sector data add up to a confusing mix of halfway decent and bad news.

First a reminder: Productivity is an important measure of efficiency, and labor productivity is the narrower of the two sets of productivity statistics tracked by the Labor Department. But although it only measures output per hour by individual workers (as opposed to examining the usage and output results for a wide-ranging combination of inputs), the labor productivity figures are released on a timelier basis than the more comprehensive multifactor productivity numbers.

Also important to remember: For all their importance, the productivity data represent the statistics in which economists have the least confidence, although the problem is much more difficult in services than in goods like manufactured products.

Nevertheless, most economists do agree that raising productivity levels is any economy’s best way to boost living standards on a sustainable basis, and so it’s discouraging to report that the overall context for manufacturing last year was pretty dreary. Another productivity series from the Labor Department judged that labor productivity in industry shrank by 0.56 percent. In 2018, it rose by 0.64 percent. Moreover, this general result certainly doesn’t indicate that American manufacturers made much progress compensating for higher costs created by metals and China tariffs by figuring out how to make their workers more efficient.

At the same time, last year, labor productivity fell in 54 of the 86 manufacturing sectors monitored by the Labor Department. As bad as that sounds, this result was actually better than that for 2018, when labor productivity decreased in 67 of those sectors.

Although the so-far-pervasive but widely varying use of Chinese materials, parts, and components makes identifying the China tariffs’ impact on labor productivity, figuring out the effects of the metals tariffs is much easier, and here the news is more encouraging still.

In durable goods – the super-sector that contains the major U.S. industries that use tariff-ed steel and aluminum – labor productivity fell in 31 of the 51 sectors examined. That’s a genuine improvement on 2018, when labor productivity decreased in 41 out of 51.

Even more revealing: Most of the big metals users themselves stepped up their productivity game somewhat in 2019, though in absolute terms (as shown in the table below), their yearly performances weren’t by any means impressive.

2018                       2019

fabricated metals products:                      -1.4 percent             -0.1 percent

machinery:                                                  0 percent             -0.2 percent

household appliances:                           +1.6 percent            +2.0 percent

motor vehicles:                                       -7.6 percent            -2.1 percent

motor vehicle parts:                                -1.2 percent            -0.6 percent

aerospace products & parts:                   -8.1 percent            -2.2 percent

As long as the CCP Virus keeps affecting the American and global economies (an especially important point for manufacturing, since in 2019, its exports represented nearly 18 percent of its total gross output), it’ll be tough to get a handle on underlying trends in manufacturing labor productivity and other performance indicators. But on the labor productivity front, last week’s figures sadly make clear that a return to pre-virus levels won’t be terribly difficult to achieve.

ALAN TONELSON
Alan Tonelson, a columnist for IndustryToday, is founder of the RealityChek blog (alantonelson.wordpress.com), which covers manufacturing, trade, the economy, and national security. He has written for many leading publications on these subjects and is the author of The Race to the Bottom (Westview Press, 2000).

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