Throughout the NCAA men’s college basketball tournament that began today, productivity across America is supposed to swoon, as fans in droves periodically shunt aside work to see how their picks in office betting pools are faring. According to the federal government, however, it’s possible that the March Madness effect last year wasn’t major. For the latest data on the broadest measure of productivity tracked by the federal government just revealed the best annual improvement since 2010.
Yesterday, the Bureau of Labor Statistics (BLS) reported on the status of multi-factor productivity in the United States – which measures how much of a given unit of output is being created through the use of a wide range of inputs, including labor, capital, energy, materials, and the findings from research and development. As a result, it’s a more comprehensive gauge of efficiency than the labor productivity statistics, which come out on a timelier basis, but simply show how many worker hours are needed to produce a given unit of output.
The one percent improvement in multi-factor productivity achieved between 2017 and 2018 for private non-farm businesses (the headline figure) may sound pretty modest. And it’s certainly been eclipsed frequently since BLS began calculating these figures in 1988. But the 2018 gain was the strongest since the 2.6 percent surge at the start of the decade. And that previous performance needs to be understood in context, since it came near the beginning of the current economic recovery, a stage of the business cycle when productivity growth tends to be strong.
Because these multi-factor productivity data are only kept on an annual basis, it’s not possible to compare with pinpoint accuracy how such efficiency improvements in the United States are taking place during the current recovery versus its predecessors. (After all, recessions and expansions usually don’t conveniently start and end in at the beginning or close of calendar years.) Yet a rough sense of the trends can be discerned from the following table, which uses the calendar years marking turns in the business cycle:
1990s expansion (2Q 1991 to 1Q 2001): +10.61 percent
bubble expansion (4Q 2001 to 4Q 2007): +7.37 percent
current expansion (2Q 2009 to present): +5.40 percent
Especially considering that the current expansion has been much longer than its immediate predecessor, and nearly as long as the 1990s expansion, U.S. multi-factor productivity growth has clearly experienced a big slowdown. With productivity growth widely seen as a key to boosting national living standards on a sustainable (as opposed to bubble-ized) basis, that’s troubling. So however encouraging the 2018 increase is, there’s no doubt that the nation has its work cut out in order to make productivity growth great again.