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Nonfarm Productivity Fell 2.5% in First Quarter, Most Since 2015

May 7, 2020
Durable goods manufacturing output plummets 11.9%, total manufacturing productivity falls 3.3%.

According to the Department of Labor, nonfarm business sector labor productivity fell 2.5% in the first quarter of 2020. Output decreased 6.2% and hours worked fell 3.8%. Unit labor costs in the nonfarm business sector increased by 4.8% and hourly compensation rose 2.2%. The 2.5% drop in productivity, which is calculated by dividing an index of output by an index of hours worked, is the largest drop since the fourth quarter of 2015.

In manufacturing, sector labor productivity fell 3.3%, as hours worked fell 3.9% and output plummeted 7.1%. Most of the brunt of the COVID-19 impact appears to have been borne by the durable goods sector, which saw productivity fall 8.3%. Output of durable goods fell 11.9%, and hours worked in the sector fell by 3.9%. The durable goods sector includes automakers like GM and Ford which have been forced to close their factories by quarantine laws.

Productivity in nondurable goods actually increased by 2.1% as output fell at a slower rate (1.8%) than hours worked (3.8%). Another particularly stark difference was in real hourly compensation: real hourly compensation in nondurable manufacturing rose 3.7% while it fell 3.4% in durable manufacturing.

Compared to the first quarter of 2019, productivity in manufacturing fell 1.7% as output fell 2.4% and hours worked fell 0.7%. Real hourly compensation for the sector fell 1.0% in the same period. The split between durable and nondurable manufacturing was present in the year-over-year results as well. The durable goods sector saw productivity fall 8.3% while nondurable productivity rose 2.1%, and while nondurable goods output fell 1.8% compared to 2019, durable goods output fell by 11.9%.

According to the Bureau of Labor Statistics, which released the information, the report only includes the beginnings of the COVID-19 impact, which is based on their Current Employment Statistics Survey, which “largely predated” the COVID-19 job losses at the end of March and beginning of April. In order to cover those job losses, the BLS adjusted March employment using the Department of Labor’s initial unemployment claims, which shot up to a high of 6.8 million in the final week of March and have been declining slowly ever since.

On May 7, the BLS released the latest report on initial unemployment claims, which shows that an estimated 3,169,000 people filed for unemployment benefits in the week ending May 2. Tomorrow, May 8, the Bureau is expected to release its Employment Situation report for the month of April, which will include detailed figures on how many people lost their jobs and in what sectors they lost them in.

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