The U.S. government’s latest figures on the broadest measure of the economy’s productivity growth came out this morning, creating the perfect opportunity to report on these key data along with a narrower set of productivity growth numbers released two weeks ago. The latter generally are timelier (though not this time), and the latest edition revises these numbers going all the way back to 1990!
The big takeaway: Despite some very modest upgrades for the most recent results, the economy remains in the midst of a major productivity slowdown. This matters greatly, because even though many economists doubt how accurately the government statistics measure productivity growth, nearly all economists agree that strong performances in this field are crucial to boosting Americans’ living standards in a sustainable way.
First, the broader measure – known as multi-factor productivity because it measures the nation’s prowess at using a wide range of inputs to generate a unit of output of a certain good or service. For non-farm businesses (the headline figure used by the productivity-tracking Bureau of Labor Statistics to capture the economy as a whole), the BLS calculates that multi-factor productivity improved by 0.9 percent between 2016 and 2017. That’s reasonably good news, since it’s the best such rate of growth since 2013-14’s one percent.
Revisions for 2014-15 and 2015-15, moreover, were only slightly negative in toto.
Yet in historical perspective, this performance remains pretty miserable. Comparing multi-factor productivity growth during the last three economic recoveries (to obtain the best apples-to-apples data), shows the following:
Non-farm business multi-factor productivity grew by 9.75 percent during the 1990s expansion (which lasted roughly nine years). It grew by 7.29 percent during the early 2000s bubble recovery (so called because its dependence on borrowing and spending wound up triggering the national and global financial crises). Since that expansion lasted about six years, it’s annual multi-factor productivity growth was actually a little better.
But the current economic recovery began in the middle of 2009. Yet through the end of 2017, multi-factor productivity for non-farm businesses increased by only 6.84 percent. So the pace of growth has slowed considerably.
The labor productivity figures tell us about economic efficiency stemming from the use of just one input – an hour’s worth of work by a single worker. But they’re usually more up to date since they come out on a quarterly, not annual, basis. And these more frequent reports also contain more detailed breakdowns, which is especially interesting for me because they make possible gauging manufacturing’s performance.
For that non-farm business sector, BLS now tells us that last year’s fourth quarter labor productivity stayed unchanged sequentially on an annual basis – hardly good, to be sure, but better than the 0.1 percent dip previously reported. That upgrade, plus a third quarter growth rate that’s now 2.7 percent rather than the previous 2.6 percent number, helped bring the full-year 2017 advance to 1.1 percent. That’s the best annual performance since 2013-14’s 1.5 percent.
Unfortunately, as indicated above, these results incorporate long-term revisions, and these actually worsen the non-farm labor productivity story. Again, examining the trend over the last three economic recoveries, we find that cumulative labor productivity growth remained the same for the 1990s and bubble-decade expansions – 23.25 percent and 16.03 percent, respectively. But the figure for the longish current recovery was cut from 9.34 percent growth to 9.32 percent.
Manufacturing’s labor productivity growth patterns look quite similar. The fourth quarter sequential advance was revised up from an excellent 5.7 percent annualized to six percent. And the third quarter’s dismal 4.9 percent annualized drop was upgraded to a 4.7 percent decrease.
Longer term, moreover, the slowdown story here remained intact, too. As with non-farm business labor productivity, manufacturing labor productivity’s cumulative growth during the 1990s recovery and the bubble decade recovery were unrevised by the BLS. So they’re still 45.91 percent and 30.08 percent (much higher in absolute terms, you’ll note, than the growth for non-farm businesses overall). But the 10.91 percent manufacturing labor productivity growth increase for the current recovery was revised down to 10.90 percent. And yes, its performance between the last two economic recoveries deteriorated at a much faster rate than that of non-farm business labor productivity.
It’s still true, as indicated above, that lots of uncertainty still surrounds all these productivity data. But it’s also still true that most of the economists who argue about their accuracy agree that the current recovery’s overall growth has been historically feeble. Significantly slowing productivity growth is entirely consistent with this weakness.