So much for the overall American labor productivity revival (which wasn’t much of a revival). At least so far.
The newest (preliminary) figures for the fourth quarter of last year are just in, and they show that the headline figure (for non-farm businesses) fell sequentially by 0.11 percent on an annual basis. The dip was the first since the first quarter of 2016. Moreover, the third quarter surge that was originally reported at 2.95 percent annualized (the best sequential result since the 4.34 percent of the third quarter of 2014) was revised down to 2.72 percent.
(As RealityChek regulars know, labor productivity is the narrower of the two measures of economic efficiency tracked by the Labor Department and most other national economies. Multi-factor, or total factor, productivity, looks at output as a function of a much wider range of inputs than simply person hours worked, but the data come out on a much less timely basis.)
These results were partly offset by a startling turnaround in manufacturing’s labor productivity. The preliminary fourth quarter, 2017 annualized increase is pegged at a stunning 5.56 percent. If that figure (or close to it) holds, that would be industry’s best such performance since the 6.82 jump in the second quarter of 2010 (early during the current recovery, when productivity tends to bounce back, along with the rest of the economy). The final third quarter result was a 4.77 percent plunge.
Still, the continuing crisis in American labor productivity is made (loud and) clear by comparing the economy’s performance across recent economic expansions (to get the apples-to-apples figures). During the 1990s recovery, which lasted just under ten years, non-farm business labor productivity increased by 23.25 percent. During the 2000s “bubble decade” expansion, which lasted six years, the rise was 16.03 percent – indicating a slight slowing of the growth rate. But during the current recovery, which was eight and one half years old at the end of 2017, labor productivity has been up only 9.34 percent. That is, its growth rate has been much slower – and barely flat cumulatively.
Manufacturing’s labor productivity growth slowdown has even more dramatic – especially lately. During the 1990s expansion, it shot up by 45.91 percent. The growth rate plummeted to 30.08 percent during the shorter recovery of the 2000s decade, and then all the way down to 10.91 percent through the first eight and one half years of the current recovery. In other words, manufacturing’s labor productivity growth since the expansion began has been minimal, too.
The productivity data are among the figures in which economists have the least confidence, and it remains entirely possible that, according to one major critique, they’re missing most of the progress enabled by new technologies whose impact is excruciatingly difficult to measure. (Here’s a report spotlighting a typical version of this argument.) At the same time, these figures – especially for the current expansion – track with reports showing weak capital spending, generally seen as a prime source of productivity growth. And when it comes to manufacturing, the Labor Department’s methodology still considers jobs offshoring as a development that boosts labor productivity – even though the total number of workers worldwide doesn’t change, and therefore the sector’s total efficiency doesn’t, either.
So the challenge remains for American leaders to grow the economy in the healthy way, by relying on increasingly productive workers and businesses and industries. Or it can continue the easy money route chosen since the financial crisis, and hope that, for some unspecified reason, the results will be different this time.