Amid the din of this year’s presidential campaign, the U.S. economy keeps slogging along. And I do mean slogging. One big reason was highlighted last week by the Labor Department: Its latest read on the broadest measure of productivity shows that, according to this gauge of efficiency, America keeps falling considerably short of its historical standards. And if productivity growth is going by the boards, so too are the nation’s best hopes for boosting living standards in a sustainable, as opposed to bubbly, way.
The new data cover multi-factor productivity – i.e., how much output the economy generates from using a wide range of inputs, including labor, capital, energy, and materials. Unfortunately, these statistics are not released in as timely a manner as those that simply measure labor productivity, and so the new numbers only present the final results for 2014. But since the economy didn’t exactly take off growth-wise in 2015, there’s no reason to believe that upcoming numbers will change this discouraging story greatly.
Labor’s new release isn’t devoid of good news. The final multi-factor productivity gain for 2014 – 0.7 percent for private non-farm businesses – was much better than 2013’s performance (when it shrank by 0.1 percent). The newest increase was also bigger than the annual 0.4 percent average for the 2007 to 2014 period.
But the final 2014 figure represented a slight downgrade from the previously reported improvement of 0.8 percent, and the final 2013 number was revised from a 0.9 percent gain to that small decrease. Moreover, multi-factor productivity’s 2014 growth was less than half the rate achieved between 1995 and 2014, and even lower than the 1987-2014 annual average rate of one percent.
Also disturbing about the new multi-factor productivity release: For all the excitement generated by the internet revolution, social media, and the like, technological advance seems to be playing an ever smaller role in what productivity gains the U.S. economy is recording. Indeed, the “capital intensivity” of America’s private non-farm businesses fell in 2014, and has now slipped for three of the last four years. These have been the only annual decreases over the entire 1987-2014 period during which the Labor Department has tracked multi-factor productivity.
Indeed, these results seem to support the views of Northwestern University economist Robert Gordon, who contends that recent technological innovation hasn’t had nearly the life- (and productivity-) enhancing impact of earlier advances – like the automobile and indoor plumbing. Similarly, they appear to confirm findings that American businesses lately haven’t been investing either many of their own profits or the mammoth foreign capital flows being received by the U.S. economy with a focus on meaningfully upgrading their products or their industrial processes.
As I’ve written before, even the most high-handed economists tend to agree that productivity is a concept they don’t measure with great confidence. And forecasts about trends as important as “the future effects of technology” deserve major skepticism. But considering how slow America’s growth has been since the Great Recession ended, and how the latest credible projections point to further deceleration, it seems increasingly clear that the productivity gains the nation is achieving aren’t resulting in adequate growth, and long-promised tech miracles remain promises.