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Productivity
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Manufacturing and Mining Labor Productivity
On April 28, 2022, the Bureau of Labor Statistics (BLS) updated measures for 91 detailed industries in Productivity and Costs by Industry: Manufacturing and Mining Industries - 2021. Chart 1 from the news release reveals that some of these industries had double-digit percentage increases, or decreases, in labor productivity.
The productivity program also publishes Total Factor Productivity in Major Industries, which includes the manufacturing sector and 21 industries as defined by the North American Industry Classification System (NAICS), in the fall of the year after the data reference year. That release uses some different source data and methods than the detailed industry measures. Finally, Total Factor Productivity Trends for Detailed Industries, which includes data for 86 detailed manufacturing industries, comes out in the summer two years after the reference year.
In 2021, the manufacturing sector (NAICS 31-33) comprised 10.3 percent of nonfarm business sector employment (12.65 million jobs) and 11.1 percent of U.S. Gross Domestic Product (GDP). The mining sector employed approximately 532,700 jobs, or 0.4 percent of all total nonfarm employees in 2021, and contributed 1.2 percent to GDP.
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Pent-up demand meets bogged down supply
On July 19, 2021, the National Bureau of Economic Research determined that April 2020 was the trough in U.S. economic activity and the end of the shortest recession on record that began in February.[1] By May 2020 the U.S. officially entered an expansion. Increases in both output and hours worked were widespread among manufacturing industries. Output rose in 64 out of 86 four-digit NAICS manufacturing industries and 58 had growth in hours worked. Although increases in both output and hours worked were widespread among manufacturing industries in 2021 relative to 2020, most remained below 2019 levels. Chart 2 shows that, compared to 2019, only 25 out of 86 industries had higher levels of real sectoral output in 2021 and only 17 had higher levels of hours worked. The manufacturing sector may be expanding, but it is still in recovery.
Pent-up demand for goods, soaring shipping costs, clogged ports, and a labor shortage caused a perfect storm for the supply chain breakdown and soaring prices. Record-breaking prices were widespread throughout the sector due to historic inflation. In 2021, the output price rose[2] in all but 2 of the 86 four-digit NAICS manufacturing industries, and 82 had higher prices relative to 2019. Some of the largest price increases underlying the sectoral output price deflator came from the primary metals and wood products industries.
During the pandemic, stimulus checks, low mortgage rates, and working from home boosted the demand for new housing and home renovation projects. The demand for industrial materials like steel and wood skyrocketed. All industries within primary metals and wood products saw increases in real sectoral output, sectoral output, and the sectoral output price deflator.
The iron and steel mills and ferroalloy industry is the largest four-digit industry within primary metal manufacturing. In 2021, this industry saw an 11.4 percent increase in real sectoral output, a 109.7 percent increase in sectoral output, and an 88.3 percent increase in the sectoral output price deflator.
The 88.3 percent increase in the output price for the iron and steel mills and ferroalloy industry was driven by a whopping 152.6 percent increase in the price of hot rolled steel sheets and strips, which constitute approximately a third of the output for this industry. Hot rolled steel sheets and strips are used to make railroad tracks and i-beams for construction. The quarantine procedures in 2020 had limited steel production both domestically and internationally due to reduction of staff or complete shutdown of steel plants. As the economy began reopening in mid-2020, demand for steel items began increasing but limited supply due to the economic slowdown caused prices to surge all throughout 2021.
All industries within wood products also saw increases in output and prices, particularly in plywood and engineered wood products, which saw a 47.9 percent increase in producer prices. During the pandemic, a rise in home improvement projects and new housing construction pushed demand for wood products higher than the industry anticipated. Low timber supplies, delays in truck transportation, and worker shortages added to the price pressure from the supply side.[3]
Chart 3 shows the monthly movements in the producer price indexes underlying the large annual increases in the sectoral output price deflator.
Despite the increase in output, the wood products industry saw decreasing productivity of -1.2 percent due to hours outpacing output.
In contrast, the primary metals industry saw a 9.5 percent increase in productivity, the largest gain among all three-digit NAICS manufacturing industries. The increase in productivity was driven by increased production of construction steel.
Coal mining has a moment in 2021
Coal production has declined precipitously in recent years. As shown in chart 4, coal production has decreased 47 percent over the past decade from 1.086 billion to 577 million short tons. Hours have fallen more than output leading to an increase in labor productivity during this period.
Ninety percent of mined coal is used in power generation.[4] The increase in natural gas power generation and the passing of air quality laws has led to fewer operating coal power plants and less coal consumption. From 2012 to 2020, coal power generation capacity decreased by 41 percent while natural gas generation capacity increased by 29 percent.[5] Coal power plants continue to be retired without replacement, and since 2011 more than 100 coal power plants have been converted to natural gas power plants.[6]
Despite a long-term downward trend in coal generated power, coal production increased 8.1 percent in 2021. This was the first increase in coal production since 2017. Coal consumption for power generation increased in 2021, the first increase since 2013. Chart 5 shows both the general downward trend in coal used for electricity generation as well as the increase in 2021.
The main explanation for this increase in coal generated power in 2021 was the relative increase in the price of natural gas in relation to the price of coal. Chart 6 shows this change in the relative prices. As coal became relatively cheaper in 2021, coal power capacity utilization increased from a share of 40 percent of total power generation to 51 percent. This increase in capacity utilization led to a higher demand and production of mined coal.[7]
This short-term increase in coal production is expected to be temporary with no change to the structural factors causing the long-term downward trend in coal-generated energy.
Related resources
Industries at a Glance: Manufacturing NAICS 31-33
Industries at a Glance: Mining, Quarrying, and Oil and Gas Extraction NAICS 21
Multifactor productivity slowdown in U.S. manufacturing
Dispersion Statistics in Productivity for U.S. manufacturing
Overview of BLS Productivity Statistics
Notes
[2] The sectoral output price deflator measures the relative change in the price of sectoral output over time. For manufacturing industries, the sectoral output price deflator trends closely with BLS industry Producer Price Index (PPI). The PPIs measure price change from the perspective of the seller. It is sometimes assumed that the direction and magnitude of price changes in the PPI will anticipate or parallel similar changes in the Consumer Price Index (CPI) for all items.
[3] Source: Ryan Ogden, “How did the COVID-19 pandemic affect input costs for U.S. producers? A review based on BLS input cost indexes,” Beyond the Numbers: Prices & Spending, vol. 10, no. 15 (U.S. Bureau of Labor Statistics, December 2021).