What a lousy day for economic news! (Or should I say, “What a day for lousy economic news”?) On top of the terrible trade figures I posted on this morning, the Labor Department released some comparably dreary productivity numbers.
These latest labor productivity data show that, in the fourth quarter of 2014, on a quarterly basis, output per hours worked in America’s non-farm businesses fell for the second time last year at an annualized rate. (A broader measure, multi-factor productivity, is tracked by Labor, but with a much longer time lag.) At least the 1.80 percent decrease was better than the five percent decrease registered in the first quarter. But that reading (which is still preliminary) was undoubtedly yet another economic casualty of the harsh winter. Also encouraging was that the third quarter productivity increase was revised up from an annualized 2.40 percent to 3.70 percent.
Nonetheless, for the full year, the economy’s productivity increase was 0.80 percent – the worst performance since 2011’s 0.10 percent. Even during the previous decade, whose thoroughly bubble-ized economy is no one’s ideal, annual increases regularly and considerably exceeded these rates.
The new productivity figures revealed a manufacturing performance that was mixed at very best. On the one hand, the sector remained the nation’s productivity leader by a wide margin. It’s 2.50 percent annual productivity gain was more than three times greater than the overall economy’s. Yet its fourth quarter sequential performance lagged, as output per hours worked rose by only 1.30 percent.
Manufacturing’s annual productivity improvement was its best since the whopping 6.20 percent gain in 2010 – which reflected the sector’s rapid bounce-back from a frightening recession. But as with the non-farm economy generally, manufacturing’s performance during the current recovery (which began in the middle of 2009), has trailed that of even the bubble decade. That’s sure not how I spell “renaissance.”
The most surprising news in this productivity report was on the paycheck front, and it was a pleasant surprise. Unfortunately, it wasn’t a very big pleasant surprise. Adjusted for inflation, hourly compensation in manufacturing (which includes not only wages but salaries and benefits) rose faster in 2014 than compensation in the non-farm business economy overall for the first time since 2009. In fact, the increase in real hourly manufacturing compensation was the first positive reading since that year. If only it wasn’t a measly 0.80 percent (versus 0.70 percent in the non-farm sector).
Moreover, if the 2014 statistics are the start of a new trend, the nation will have exchanged one type of serious productivity problem for another. In recent decades, this measure of efficiency has risen much faster than compensation – meaning that, contrary to economic theory, workers were not benefiting adequately from better business management techniques and advances in technology. Last year, productivity growth slowed but pay picked up. One major sign of a genuinely healing economy is when both are rising at historically respectable rates once again.