In her breathlessly awaited speech yesterday in Philadelphia, Federal Reserve Chair Janet Yellen argued that “Over time, productivity growth is the key determinant of improvements in living standards, supporting higher pay for workers without increased costs for employers.”
If, as likely, she’s right, then Americans just got a reminder that they’re still in big trouble in this respect. For the Labor Department just came out with its revised data for productivity growth in the first quarter of this year and for 2015’s fourth quarter, and they were only slightly less awful than the initial report. Manufacturing is stuck in the productivity doldrums, too, but the new statistics also made clear that it remains the economy’s productivity leader – and therefore that the sector’s recent growth and employment stagnation deserve special attention from policymakers.
For the record, these new numbers track labor productivity – one of two measures of efficiency monitored by the Labor Department and economists. This gauge is narrower than its counterpart, multi-factor productivity, because it looks at only one input to production processes – hours on the job by the American workforce. But the labor productivity data always and rightly attract lots of attention because they come out more frequently, and are more up to date, than the multi-factor numbers. Those examine the effects of a wide variety of inputs like capital, energy, and materials.
According to the Labor Department, the nation’s non-farm businesses (the group whose performance is most closely followed) became 0.6 percent less productive sequentially on an annualized basis in the first quarter, and 1.7 percent less productive on quarter in the fourth quarter. The former result was slightly better than the one percent drop previously estimated by the Labor Department, while the latter figure was unchanged.
Year-on-year, labor productivity is now up 0.67 percent. That’s slightly lower than the increase between the first quarters of 2014 and 2016 (0.71 percent). And although this rate is much better than the virtual productivity stagnation of the previous two years, it’s unmistakably poor by historical standards.
By contrast, manufacturing’s sequential annualized labor productivity performance was downgraded by the Labor Department for both the first quarter and the fourth quarter. For the end of last year, it’s now judged to have fallen by 1.2 percent rather than one percent, and for the beginning of this year, its growth has been revised from 1.9 percent to 1.3 percent. But both figures are considerably better than for non-farm businesses as a whole.
Year-on-year, manufacturing productivity has now advanced by 1.32 percent, its best such gain since 2012 (1.68 percent), but also much lower than its historic norm.
An especially informative way to illustrate the U.S. productivity crisis is to compare growth during periods of economic expansion – which yields apples-to-apples data. The statistics for the whole economy go back to 1947, but let’s start with the 1980s expansion, which lasted from the fourth quarter of 1982 through the third quarter of 1990. During that period, labor productivity increased by a total of 17.15 percent.
The 1990s expansion, which began in the second quarter of 1991 and ended in the first quarter of 2001, was somwhat longer, and it saw significantly better total labor productivity performance – a gain of 23.01 percent.
The 2000s expansion was much shorter, running only from the fourth quarter of 2001 through the fourth quarter of 2007. But productivity rose at a similar annual pace, and hit 16.08 percent in toto.
But we have labor productivity data for seven full years of the current expansion, and productivity only improved by 10.09 percent in that stretch.
Nor does there seem to be much cause for productivity optimism in the near future. Unless you’ve heard many 2016 political candidates even talking about this crucial issue?