U.S. Manufacturing Productivity Surpasses Expectations

In the third quarter, U.S. manufacturing productivity performed better than anticipated, largely due to robust production in the durable goods sector. This indicates improved efficiency on factory floors.

Specifically, productivity in durable goods manufacturing grew at an annualized rate of 5.4%, a revision upward from the initial estimate of 4.7%. Additionally, production in this sector was revised to a 3.6% increase, while the number of hours worked saw a decrease of 1.7%.

Overall, manufacturing productivity increased at an annual rate of 3.7%, also revised up from a previous 3.3%. Manufacturing output saw an upward adjustment to 3.0%, and hours worked dipped by 0.7%.

These revised numbers underscore a quarter in which producers managed to accomplish more with less time, particularly in industries focused on long-lasting products like machinery, vehicles, and equipment.

This update has slightly alleviated the pressure of labor costs within manufacturing. For durable goods, unit labor costs remained steady at a 0.6% rise in the revised estimates, thanks to notable gains in productivity. However, unit labor costs for the entire manufacturing sector were adjusted down from 1.5% to 1.1%.

Looking at the broader economy, the revised data did not alter the overall picture. Non-farm productivity in the third quarter climbed at an annualized rate of 4.9%, consistent with previous reports, with output increasing by 5.4% and hours worked rising by 0.5%. In this sector, unit labor costs declined by 1.9% as well, showing no significant changes.

Moreover, this update slightly enhances the productivity outlook for the non-financial business sector, which saw an increase of 3.3%, up from 3.0%. The unchanged working hours at 0.7% and an upward revision of output to 4.0% contributed to this change. Unit labor costs in the non-financial corporate sector were also revised down from 0.6% to 0.3%.

Economists frequently highlight that growth in productivity can lead to disinflation, suggesting that increased productivity can foster economic expansion and wage growth without driving up prices. “At the end of the day, technology increases productivity, which is the basis for higher wages,” noted Fed Chairman Jerome Powell. He added, “While it may not be immediate, it’s these productivity gains that facilitate income growth over time.”

Data presented is seasonally adjusted and expressed as an annual rate. Productivity measures output along with unit labor costs per hour while reflecting labor compensation related to productivity.