The Economy

Manufacturing Productivity Growth Rate In U.S. Slows

May 5, 2005

Although productivity growth in U.S. manufacturing advanced at a respectable seasonally adjusted annual rate of 3.9% from January through March of this year, that figure was significantly below the 6.3% growth rate during the final quarter of 2004. ...

John McClenahen

Output among U.S. manufacturers increased 3.3% during the first quarter of 2005 and hours worked fell seven-tenths percent, marking the fourth consecutive quarter that output in manufacturing has risen and hours have fallen, the U.S. Labor Department reported on May 5.

As output increased 5.8% and hours decreased four-tenths of a percent, productivity increased at a 6.3% rate among durable goods manufacturers, the makers of airplanes, autos and appliances whose products are designed to last more than three years. Productivity grew a much-slower 1.3% among producers of durable goods, as output increased just three-tenths of a percentage point and hours fell 1%.

In the broader nonfarm business sector of the U.S. economy, which includes manufacturing, productivity increased at a 2.6% annual rate during the first quarter of this year, as output grew 3.6% and hours increased 1%.

"As expected, the manufacturing sector's more solid 3.9% productivity increase outpaced the rest of the economy," says a pleased David Huether, chief economist at the National Association of Manufacturers, Washington, D.C. "In fact, my analysis shows that manufacturing has accounted for roughly 30% of our overall economy's productivity gains during the last 15 years," he relates. "If manufacturing maintains this impressive pace of productivity gains, we could begin to see more sizable increases in industrial employment later this year as our economy works past its current, high-energy-price-induced soft patch."

Meanwhile, Merrill Lynch & Co.'s economists note "less welcome news" that unit labor costs in the nonfarm business sector grew 2.2% during the first quarter, up from 1.7% in the final quarter of 2004. Nevertheless, they seem to be adopting a phrase from the iconic "Hitchhiker's Guide to the Galaxy": Don't Panic. "While unit labor costs were on the high side, we don't expect this to mark the beginning of a trend since the slowdown in economic growth on the horizon will keep a lid on compensation," Merrill says.

Unit labor costs in manufacturing grew nine-tenths of a percent during the first quarter, just slightly above their eight-tenths gain in the final quarter of 2004 and, figures the NAM's Huether, "about two-thirds slower than the prior six months."

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.