Just a quick post today to note how dismal the latest official figures on labor productivity in the United States were.
The second (and last, for now) reading showed that the economy’s efficiency by this measure had fallen sequentially by 2.10 percent at an annual rate. And that was actually an improvement over the first estimate, which posted a 2.78 percent drop.
The same goes for the annual results. Since the first quarter of last year, US labor productivity has dropped 0.8 percent, instead of the 0.9 percent initially reported. As a result, one observation made by the Department of Labor researchers who collect this data still stands:
This drop in productivity represents “the first time that the four-quarter variation series remains negative for five consecutive quarters; this series begins in the first quarter of 1948.”
And if two consecutive quarters of shrinking production is commonly thought of as an economic recession, the argument seems pretty strong that a full year’s worth of decreased productivity qualifies as a productivity recession.
Put another way, this outright decline in labor productivity means that non-farm US businesses (the Labor Department’s US corporate universe) continue to need workers working longer and longer hours simply to maintain their current mediocre levels of production.
It also indicates that these companies are becoming less innovative and less able to sustain their profits in the face of cost increases of any kind (salaries, materials, whatever) without passing them through, thus fueling inflation.
Finally, while the revised first-quarter labor productivity results improved slightly, they make clear just how dramatically America’s performance has worsened during recent economic expansions. (as known by reality check regulars, comparing similar stages in business cycles sheds more light on trends and developments).
1990s expansion (Q2 1991-Q1 2001): +25.02 percent
bubble expansion (Q4 2001-Q4 2007): +16.01 percent
Pre-CCP virus spread: (Q3 2009-Q4 2019): +11.92%
Post-CCP Virus Expansion: (Q3 2020-Q1 2023): Was -1.99%, Now -1.83%
As it is also known by reality check regular, productivity is the most difficult indicator of economic activity to measure accurately, especially for the service sector (which comes to dominate US economic output). But the trend is so pronounced that it can by no means be dismissed out of hand.
And given that there is also widespread agreement that strong productivity gains are the most likely way to boost living standards in a sustainable way, rather than bubble up, you may wonder why, for all their importance, Government productivity reports continue to be so completely neglected. by US leaders and economic reporters and commentators.