U.S. Manufacturing Productivity Surges in Q2

The Labor Department announced on Thursday that U.S. manufacturing productivity during the second quarter was notably stronger than earlier reported, with the most significant adjustments occurring in durable-goods sectors.

According to the Bureau of Labor Statistics, manufacturing labor productivity increased at an annualized rate of 2.4 percent from April to June, revising up from a preliminary 1.9 percent. Additionally, first-quarter productivity estimates were adjusted higher, moving from 1.9 percent to 2.2 percent.

This upward revision was largely due to improved estimates for factory output combined with a smaller-than-expected increase in hours worked. Manufacturing output is now believed to have grown at an impressive 5.4 percent annual rate, up from the previously reported 4.6 percent, while hours worked grew by 2.9 percent, revised from an earlier 2.6 percent.

Notably, this increase marks the highest rise in manufacturing output since the second quarter of 2021, when it jumped by 6.7 percent. Productivity essentially measures how much product is created for every hour of labor.

The revisions were particularly significant for manufacturers of durable goods. This category includes products like machinery, electronics, and transportation equipment. In fact, productivity in durable manufacturing was reported to have grown at a 3.6 percent annualized rate for the second quarter, vastly exceeding the initial estimate of 2.7 percent. Durable-goods output was revised to show an 8.9 percent increase, compared to a former 7.3 percent estimate, and hours worked were adjusted to a 5.1 percent rise from 4.5 percent.

Interestingly, these productivity boosts have occurred alongside job growth within the sector. Manufacturing employment saw increases during both the first and second quarters, particularly within durable-goods industries. This trend is somewhat unusual; sequential quarters showing productivity growth of at least 3.6 percent along with job creation in the durable-goods sector haven’t been seen since the late 1990s, except during post-recession recoveries.

The government also updated the first-quarter productivity growth in durable manufacturing to 4.9 percent, up from 4.6 percent. Output growth for that period was raised to 5.2 percent from 4.8 percent, while the estimate for hours worked remained stable at 0.3 percent.

In contrast, revisions for nondurable manufacturing were less significant. Second-quarter productivity growth was adjusted up by a tenth of a percentage point to 2.1 percent, and first-quarter productivity was modified to show a 0.6 percent decline rather than a previously reported 0.7 percent drop.

This stronger productivity estimate also led to a decrease in labor-cost measures.

Unit labor costs across the manufacturing sector fell at a 0.3 percent annualized rate for the second quarter, compared to no change reported earlier. This represents the first quarterly drop in manufacturing unit labor costs since the second quarter of 2021.

For durable-goods manufacturers, unit labor costs fell at a rate of 2.2 percent annually, revising from an earlier estimate of a 1.6 percent decline. Meanwhile, hourly compensation rose by 1.4 percent as productivity climbed by 3.6 percent.

First-quarter unit labor costs for manufacturing were also revised downward, now showing a 3.3 percent increase instead of 3.5 percent. For durable manufacturing, the increase was tweaked to 2.6 percent from 2.9 percent.

Most of these revisions were focused on manufacturing, while productivity for the broader nonfarm business sector held steady, rising at a 1.4 percent annualized rate in the second quarter, amid a 1.7 percent increase in output and a 0.3 percent rise in hours worked. First-quarter nonfarm productivity remained unchanged at 0.8 percent.

The Bureau of Labor Statistics indicated that Thursday’s updated estimates incorporate more recent data from various government bodies, including the Labor Department and the Federal Reserve, which were not available when the preliminary figures for the second quarter were released in August.