Americans this morning finally got some good news on the productivity front – though it’s way too early to tell whether the latest Labor Department data mark the start of an encouraging trend. Moreover, the news was much less good for workers, and further weakened claims that the economy is verging on a bout of wage and compensation inflation.
The news came on the labor productivity front – an efficiency gauge that’s more narrowly based than the multi-factor productivity statistics (which try to measure the impact of all economic inputs), but that comes out much more frequently. According to the new figures, labor productivity in the second quarter rose by 3.3 percent on an annualized basis for non-farm businesses (the Labor Department’s universe on this score). That’s the best reading since the the fourth quarter of 2013, and a nice reversal of the previous two quarters’ performance, during which labor productivity fell in absolute terms. At least as good, these revised numbers represent a big improvement over the preliminary results, which estimated the second quarter’s increase at a measly 1.3 percent yearly rate.
Viewed year-on-year, the new figures were mildly encouraging. The second quarter’s annual improvement of 0.7 percent topped the first quarter rate of 0.6 percent. But historically speaking, 2015 is off to a pretty dreary start in this respect.
Yet the employees of these more efficient non-farm businesses didn’t share in the proceeds at all during the quarter. Their inflation-adjusted hourly compensation (including benefits) fell by an annualized 1.1 percent – just as the initial report showed. That’s both the worst such result since the second quarter of 2013, and a huge fall-off from the blistering 4.6 percent annualized pace achieved during the first quarter (which was revised up from an only slightly less blistering 4.2 percent). Workers’ total pay hasn’t surged this strongly since the 6.5 percent rise during the second quarter of 2013.
On a yearly basis, real hourly non-farm business compensation is showing signs of sustained some pick up. The 2.4 percent increase between the second quarters of last year and this year was the strongest such gain since the current recovery technically began – the 3.4 percent jump in the third quarter of 2009. Historically, this performance is respectable, too, but nothing special.
The labor productivity news wasn’t nearly as good, though, in manufacturing. Its revised 2.3 percent annualized labor productivity advance was the biggest since the third quarter of last year. This performance represented a downward revision of the original 2.5 percent gain reported for the quarter, but at least it was much better than the final (for now, as is the case with all these statistics) first quarter annualized decline of 0.6 percent.
The year-on-year readings were even weaker – though better than those for all non-farm businesses. From the second quarter of 2014 to the second quarter of this year, manufacturing labor productivity was up by just one percent, a slower pace than the first quarter’s 1.2 percent. And this growth rate contrasts even more strikingly with manufacturing’s historic performance than is the case for non-farm business labor productivity.
In addition, consistent with other sets of after-inflation pay statistics, manufacturing remained a major laggard in terms of real hourly compensation. Annualized real hourly compensation sank by 2.8 percent in the second quarter – slightly worse than the first reading of 2.7 percent, and steeper than the decline for the total non-farm economy. Further, it’s a major deterioration from the first quarter’s 0.8 percent increase, and right in the middle of the sector’s discouraging range during this recovery. The year-on-year data tell the same story.
Still, the overall labor productivity picture revealed in these latest statistics are good enough to warrant the conclusion, “We’ll take it.” But since productivity figures tend to be volatile, several more quarters of gains will be needed before a much needed revival in American efficiency becomes more than a goal.