Here’s the situation: A company produces a product that lasts twice as long as its competitor’s, with some differences in labor and material, but each company produces the same number of units. Is their productivity the same? Well, it depends on how you measure productivity. When comparing the output of countries (rather than companies), it becomes even more difficult to determine who is doing better or worse than the rest. Because manufacturing creates economic value and plays an important role in sustaining a country’s GDP, there is high value in being able to measure manufacturing productivity to determine a country’s sustainability, both domestically and globally.
When looking at productivity numbers on a global scale, a more meaningful measure would be changes in year over year (YOY). For those of you who may be unfamiliar with YOY (like myself, previous to this blog post), it measures statistical changes from one period, against the same period last year. Now that that’s clear, let’s continue. There’s much less disagreement when showing increases or decreases from one year to the next, than when focusing on a single year. Even better comparisons would be to monitor significant trends one way or the other. The Bureau of Labor Statistics has collected data showing significant upward trends in US Productivity from January 1, 1987 to October 1, 2015 (see below chart), where the only significant decreases have been during recessions.
Even with the increases in productivity, the National Association of Manufacturers’ Monday Economic Report (dated 3/7/16) points out a plateauing in US manufacturing employment, while the overall unemployment rate continues to decline. One reason for this is a stronger US dollar, which has been affecting exports and increasing the trade deficit. Even with US productivity increasing, and unit labor costs decreasing, it doesn’t seem to be enough to overcome global factors and create new jobs in the US. On the other hand, this news does prove that US manufacturers continue to be more competitive year after year. In support of Chart 1 (above), the Conference Board reported that in 2012, the productivity of 12 out of the 19 largest industrialized nations declined from the year before, while the US showed improvement.
Given the upward trend of US productivity, not to mention the increases in new orders and production so far this year, it is clear that US manufacturing will continue to support the overall economy. Unfortunately, it seems that significant gains in manufacturing employment will only be realized once the global economy improves.
To read more about why manufacturing is important please visit the National Association of Manufacturers webpage: http://www.nam.org/Newsroom/Facts-About-Manufacturing/