For several months, now, students of the economy have started using “productivity” and “crisis” in the same sentence. That’s both alarming in its own right – given how crucial strong productivity growth is to ensuring America’s prosperity over the long term – and because productivity can be such an eyes-glazing term that most students of the economy usually ignore it.
Today, the Labor Department made clear that we may need to start substituting “disaster” for “crisis.” For the revised read it just released on labor productivity in the second quarter of this year showed that the nearly historically bad results in the initial estimate were in fact worse than first reported.
To recap quickly, these new Labor data focused on labor productivity – how much output (of anything) can be produced with each hour of work. These numbers aren’t as comprehensive as the multi-factor productivity trends also tracked by Labor, which report on how efficiently a wide variety of inputs are used. But labor productivity figures come out on a much timelier basis.
The headline development revealed by the advance report (which actually made some headlines) was that U.S. labor productivity fell sequentially for the third straight quarter – the kind of deterioration that hadn’t been seen since 1979. Those old enough will remember that the American economy was a complete mess back then.
What we learned this morning was that on a quarter-to-quarter basis, the latest decline in labor productivity wasn’t 0.50 percent at an annual rate. It was 0.60 percent. The first quarter sequential decrease was left unchanged at 0.60 percent. (These data cover the “non-farm” business sector, which is the Labor Department’s main definition of the U.S. productivity universe.)
The manufacturing-specific results were no better. Last month’s advance estimate pegged the second quarter’s sequential decline in labor productivity in industry at 0.20 percent annualized. According to this revision, it was twice as bad – 0.40 percent. And whereas Labor had previously judged that first quarter manufacturing productivity was up by 1.50 percent annualized over the fourth quarter of 2015, it revised this gain down to 1.30 percent.
And for some more historic perspective, let’s see where the new productivity data leave the current economic recovery’s performance versus that of previous expansions. Here are the cumulative labor productivity increases for non-farm business for each of the last three economic recoveries:
1990s recovery: +23.01 percent
2000s recovery: +16.07 percent
current recovery: +6.56 percent
Don’t forget, moreover – the current recovery, which as of the second quarter of this year had lasted for seven years – was longer than its predecessor (which ran for six years). The 1990s expansion lasted for nearly ten years, and at this rate, its labor productivity performance looks totally out of reach.
As RealityChek regulars know, economists are still actively debating how well the productivity data are measuring America’s efficiency in an era where intangibles, like information technology services, clearly have become more important economically. But however difficult these new offerings are for statisticians to monitor, it’s even harder to see how they could be responsible for the labor productivity growth drop of some 75 percent America has now seen over a two-decade period.