Several industries are dealing with challenges when it comes to productivity growth in the first quarter of 2023, at least according to revised data from the U.S. Bureau of Labor Statistics.
The data shows that not only was there a 2.1% drop in labor productivity, but unit labor costs also went up by about 4.2%.
"In mid-2022, when productivity started rising from a level above its pre-pandemic trend, I hoped that the pandemic investment boom had caused a step-function increase," Julia Pollak, a Chief Economist at ZipRecruiter, wrote in a June 1 tweet. "That no longer appears to be the case. Productivity appears to be falling back to its pre-pandemic trend. Why did the pandemic investment boom not result in more lasting gains? Gains may have been offset by reduced employee tenure following the 2021-2022 turnover tsunami. Constantly having to hire staff to replace churn takes up time and money that could otherwise be channeled into producing output. And novice staff take time to get up to speed. Now that the Great Resignation has effectively come to a close, productivity could soon grow again."
The manufacturing industry saw a 2.5% decrease in productivity, and a 3.1% rise in unit labor costs, according to BLS data. The nonfinancial corporate sector recorded a 4.35% drop in productivity during the same timeframe. These statistics signal historically low productivity growth while also shining a light on worries about the overall economic outlook.
The data showed the decline in labor productivity in the nonfarm business sector was 2.1%, which is smaller than what was initially reported. Output rose by half a percent, but the hours worked went up 2.6%. The drop in productivity in the manufacturing industry can be attributed to the decreased output and increase in hours worked. The durable manufacturing sector had a more significant drop in productivity, while the nondurable manufacturing sector recorded a slight increase. The entire sector overall had a 1.6% productivity drop compared to last year.
The substantial productivity decline in the nonfinancial corporate sector was also driven by more work hours and smaller outputs. Productivity in this sector dropped 2.2% over the previous four quarters, according to the BLS data. These findings highlight the need to take action to improve productivity in various sectors of the economy.