Since America’s productivity growth has been terrible for several years, it’s surely big news that today’s Labor Department report on this measure of efficiency was almost historically terrible.
In its release on labor productivity (for the second quarter of this year), the department announced that the U.S. economy’s ability to turn out a unit of goods or services per hour worked fell sequentially for the third straight quarter. A performance that bad hasn’t been registered since 1979 – when under then-President Jimmy Carter, the nation was struggling with double-digit inflation and unemployment.
These results are preliminary, and therefore the final statistics could be better. But since American businesses keep on hiring at a relatively healthy clip (as revealed by last Friday’s jobs report), and the U.S. economy keeps growing slowly (as revealed in the latest gross domestic product report), a significant upward revision would be a major surprise.
It’s also possible that when we get second quarter data on multi-factor productivity, which gauges efficiency based on several inputs in addition to labor, the picture will look brighter. But these multi-factor numbers won’t be out until next year, since they take longer to calculate. And so far, they’ve been no better than the labor productivity data.
The new Labor Department report presents four sets of figures deserving attention. First came the actual second quarter results – which showed that non-farm business labor productivity dropped by 0.50 percent at an annual rate from first quarter levels, and that manufacturing’s performance (a subset of non-farm businesses) dipped by 0.20 percent.
Second came the revisions for the first quarter. The non-farm business figure stayed the same, at -0.60 percent annualized, but manufacturing saw its sequential labor productivity improvement upgraded from 1.30 percent at an annual rate to 1.50 percent.
Third, the government revised the last few years of annual productivity growth results, and, as with the first quarter manufacturing figure, these new overall numbers also came in a little better, while industry’s results were mixed:
Non-farm Business labor Productivity Growth Old New
2013 0.00% +0.30%
2014 +0.80% +0.80%
2015 +0.70% +0.90%
Manufacturing Labor Productivity Growth Old New
2013 +0.70% +0.20%
2014 +1.50% +1.70%
2015 +0.20% +0.30%
Finally, this morning’s productivity report permits a new comparison of the economy’s performance during the last few recoveries – the best way to measure trends over time. And here, the changes aren’t big, but they’re tilted to the downside – and the biggest negative revisions are in manufacturing:
Non-farm Business Labor Productivity Growth Old New
1990s recovery +23.01% +23.01%
2000s recovery +16.08% +16.07%
current recovery (through first quarter) +6.58% +6.73%
Keep in mind, however, that the newest (second quarter) results drag the total improvement for this recovery down to 6.58 percent.
And now for the revisions to manufacturing labor productivity:
1990s recovery +49.96% +46.65%
2000s recovery +41.09% +41.07%
current recovery (through first quarter) +24.85% +22.82%
And the new second quarter results reduce the cumulative manufacturing improvement during the current recovery to 22.76 percent.
Some economists still believe that these official data are largely missing the productivity-boosting effects of new technologies, and they could still be right. But interestingly, I’m not seeing his objection nearly as much these days as in months and years past. A strong consensus seems to be consolidating that the U.S. economy – including its once productivity-leading manufacturing sector – in mired in a major productivity slowdown. There’s no consensus on how to fix the problem, but at least we seem to be moving past the denial stage.