Tags
inflation, Labor Department, labor productivity, non-farm business, productivity, total factor productivity, {What's Left of) Our Economy
I hope you didn’t blink (figuratively) during America’s latest stretch of improvement in labor productivity. Because it’s over after only two quarters, at least according to the new Labor Department report containing the preliminary results for the first quarter of this year. Indeed, this barometer of efficiency has never been worse for an extended period.
That’s really bad news because strong productivity growth of both kinds tracked by the U.S. government (labor, which measures the output of one hour’s worth of work by a single worker; and total factor, which measures how much output is being generated a wide variety of inputs ,including labor) is the economy’s best hope for creating sustainable prosperity and for keeping inflation under control.
But after improving at an annualized rate of 1.18 percent in the third quarter of last year and 3.16 percent by the same measure in the fourth quarter, labor productivity in non-farm businesses (the Labor Department’s headline category) dropped by an annualized 2.78 percent in the first quarter of this year. And as bad as that sounds, it’s the worst such result only since the second quarter of 2022, when it sank by an annualized 3.77 percent.
The latest actual year-on-year changes are even more discouraging. Let’s let the Labor Department release speak for itself:
“From the same quarter a year ago, nonfarm business sector labor productivity decreased 0.9 percent….The 0.9-percent productivity decline is the first time the four-quarter change series has remained negative for five consecutive quarters; this series begins in the first quarter of 1948.”
And in historical context, the economy’s labor productivity performance since the beginning of the recovery from the CCP Virus’ devastating first wave, in the third quarter of 2020, is more awful still. For since the 1990s, the United States has transitioned from a country whose labor productivity had been growing respectably to one in which it’s decreasing in absolute terms.
Here are the total numbers for the economic expansions since the 1990s. (As known by RealityChek regulars, comparing similar stages in economic cycles sheds the most light on the actual trends and developments.)
1990s expansion (2Q 1991-1Q 2001): +25.02 percent
bubble expansion (4Q 2001-4Q 2007): +16.01 percent
pre-CCP Virus expansion: (3Q 2009-4Q 2019): 11.92 percent
post-CCP Virus expansion: (3Q 2020-1Q 2023): -1.99 percent
So clearly, even though the economy is still being roiled by the pandemic’s aftermath, and its effects will keep fading at least until the next pandemic, there’s plenty to worry about on the labor productivity front. The more so since there’s no evidence that many U.S. leaders or even economists are proposing plausible ways to get labor productivity out of its literally historic doldrums – or even talking about the problem.
RealityChek 
“…there’s no evidence that many U.S. leaders or even economists are proposing plausible ways to get labor productivity out of its literally historic doldrums – or even talking about the problem.”
Perhaps they have too much invested in China and self-serving globalist trade theories to admit this is the root cause of our country’s imminent collapse.
Thank you for this piece, Alan.