(What’s Left of) Our Economy: Still Desperately Seeking Decent Productivity Growth

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Labor Department, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, recovery, {What's Left of) Our Economy

The good news about America’s productivity growth that came out this morning is that new Labor Department figures showed it’s gotten a little bit better lately. The bad news is that it needs to get a lot better if the nation is going to achieve the economic goals everyone says they want: economic growth that’s healthy, and wages rising satisfactorily.

Today’s data, which report the results on a relatively narrow but timely measure of productivity growth, also furnish a handy opportunity to review recently released productivity measures that are broader but not quite so up to date.

According to the Labor Department’s preliminary read, U.S. labor productivity for non-farm businesses (the standard definition of the American economic universe) rose in the second quarter of this year at a 0.99 percent annual rate. The first quarter’s advance (feel free to make the “air quotes” gesture) was revised up from literally nothing to next-to-nothing. As RealityChek regulars know, labor productivity measures how much output is generated by each hour worked by each worker.

And that’s where the good news stops. The new Labor Department release also revised these labor productivity figures going back to 2014. These updates left the dismal recent productivity picture little changed, with one noteworthy exception: On an annual basis, labor productivity last year is now judged to have fallen (by 0.1 percent) for the first time since 1982.

Just how gloomy the labor productivity picture has gotten becomes clear when comparing its performance during the last few U.S. economic expansions (a methodology that gives us the best apples-to-apples growth). Note: Because of the new revisions, these figures supersede those contained in RealityChek’s past posts on labor productivity.

2Q 1991 to 1Q 2001: +23.25 percent

4Q 2001 to 4Q 2007: +16.03 percent

2Q 2009 to present: +8.49 percent

Manufacturing’s labor productivity performance shows this kind of deterioration, too. It’s second quarter rise was judged preliminarily to have been 2.44 percent annualized – much better (as has usually been the case) than the increase for the rest of the economy. But the first quarter figure was revised down to 0.29 percent.

And here are the figures for the current economic recovery and its two predecessors:

2Q 1991 to 1Q 2001: +46.81 percent

4Q 2001 to 4Q 2007: +41.23 percent

2Q 2009 to present: +22.25 percent

So manufacturing has seen a big labor productivity slowdown during this expansion, but it’s still leading the economy in this form of productivity growth by far.

But there’s one fly in the ointment here. As previously reported, the way the Labor Department measures labor productivity throughout the economy results in the offshoring of work generating better productivity. And of course nothing’s been offshored in recent decades like manufacturing work. Since offshoring-produced productivity gains aren’t the kind any thinking person would want, this means that the improvements seen in industry lately aren’t quite so impressive as they look. In fact, according to the Department between 1997 and 2006, offshoring accounted for 23 percent of the sector’s labor productivity gains.

At the same time, labor productivity isn’t the only kind of productivity. Multi-factor productivity is a broader, and more reliable measure; it tells us how much output is generated from the use of a wide variety of inputs, like technology, materials, capital, and energy as well as labor. The problem is that the multi-factor productivity data don’t come out nearly as often, and the latest take us only through 2015.

Still, that’s what we have, and what’s striking is that they reveal that, at least for “now,” manufacturing has lost its productivity growth lead. Here are the annual changes reported by the Labor Department for manufacturing in a July 12 release, combined with the latest such figures for the non-farm business sector as a whole:

non-farm business +0.61 percent

manufacturing -2.80 percent

Nor are the longer-term results any better for industry during the last three expansions:

                                        1991-2001          2001-2007           2009-2015

non-farm business       +11.51 percent     +9.91 percent      +5.52 percent

manufacturing             +13.98 percent   +14.66 percent       -2.17 percent

Although honest economists will admit that productivity is one of the most mysterious subjects they study, they’ll also insist that the official statistics provide a reasonably accurate picture about how the nation is using this crucial “secret sauce” for sustainable prosperity. These new Labor Department reports once again remind that the U.S. economy urgently needs to get its productivity culinary skills back up to snuff.

(What’s Left of) Our Economy: U.S. Productivity Remains in the Doldrums

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China, Labor Department, labor productivity, living standards, manufacturing, multi-factor productivity, offshoring, productivity, reshoring, World Trade Organization, WTO, {What's Left of) Our Economy

The Labor Department reported earlier this week that America’s labor productivity flat-lined at an annual rate between the last quarter of last year and the first quarter of this year. And relatively speaking, that was good news. The initial study of this measure of economic efficiency – and key determinant of the nation’s living standards – estimated that business labor productivity in the non-farm business sector (the government’s main proxy for the entire economy) fell at an annualized 0.6 percent.

Labor productivity, you may recall, is the narrowest of two measures of productivity. It gauges how much in the way of stuff or services Americans produce per hour of work from each worker. So the resulting picture isn’t as complete as that provided by multi-factor productivity – which as the name suggests looks at production per man or woman hour generated by many different inputs. But the labor numbers come out on a much timelier basis (each quarter), and for all the unusual amount of uncertainty that economists admit when they analyze productivity, they’re viewed as being reasonably reliable.

One small consolation, especially if you value manufacturing highly (as you should): Industry’s labor productivity not only grew quarter-to-quarter during the first three months of 2017 (by 0.50 percent annualized). It grew faster than the original estimate of 0.40 percent.

Manufacturing’s role as the economy’s productivity leader is also crystal clear upon reviewing the longer-term trends. During the 1990s expansion (as known by RealityChek regulars, comparing similar phases of the business cycle produces the most informative data), non-farm business labor productivity increased by 23.25 percent, while manufacturing labor productivity improved by 46.18 percent.

That recovery was America’s longest on record – just under ten years. The next expansion, during the bubble decade that preceded the financial crisis, lasted only six years. Non-farm business labor productivity rose by about the same annual pace as during the 1990s – 16.03 percent. But manufacturing labor productivity grew even faster year-by-year, advancing by 41.22 percent during the entire period.

The story is as different during this recovery as it is depressing. Although it’s so far been nearly as long as the 1990s recovery (having started nine years ago), the improvement in non-farm business labor productivity has been just 8.05 percent overall. For manufacturing, it’s been much higher – 21.55 percent – but relatively speaking, it’s a big fall-off.

Incidentally, undoubtedly one big reason for manufacturing’s excellent productivity performance during that bubble decade has to do with production offshoring. As I’ve written repeatedly, the way labor productivity is calculated results in productivity gains being recorded when businesses send jobs overseas, as well as when they use other techniques for saving labor or using their employees more effectively. And because the United States helped China enter the World Trade Organization at the start of that decade, and thus assured multinational companies that they’d remain overwhelmingly free to supply the American market from Chinese factories, that bubble decade was a major manufacturing offshoring decade.

The fall in productivity growth could indicate that, as widely claimed, manufacturing offshoring has dropped off significantly. But the evidence is mixed at best. What’s much more apparent is that, if Americans want their country’s productivity performance to rebound, they’ll press their leaders to make robust growth in domestic manufacturing a much higher priority.

(What’s Left of) Our Economy: U.S. Manufacturing Productivity Growth is Not Only Weak, but Low Quality

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inflation-adjusted growth, Labor Department, labor productivity, manufacturing, multi-factor productivity, offshoring, Trade, {What's Left of) Our Economy

Granted, the Labor Department’s latest detailed data on American manufacturing productivity isn’t as exciting as the news about President Trump’s firing of FBI Director James Comey. But if you attach any importance to the future of the U.S. Economy, you need to pay attention. For these figures simply trash the standard claims that American manufacturing is in great shape except for its workforce, which is steadily being replaced by labor-saving technologies and brilliant management innovations.

We already know that manufacturing productivity has slowed to a crawl in recent years. That’s been true both on the labor productivity front (the data that comes out on the timeliest basis, which measures output per hour worked) and on the multi-factor productivity front (the figures that take longer to calculate, and that measure how much output results from a broad range of inputs). What the new statistics reveal is that its sluggishness may not be the most worrisome aspect of manufacturing’s labor productivity lately. For the quality of that productivity growth has been very low quality, too.

By high quality labor (or multi-factor) productivity growth, I mean better efficiency that’s accompanied by more output. That’s the kind of productivity growth that the conventional wisdom apparently assumes domestic manufacturing has been generating. Low quality productivity growth means that better efficiency is taking place while output is shrinking. When we’re talking about low quality labor productivity growth, we’re talking about industries that are getting less efficient while turning out fewer goods. And that description applies to exactly half of the categories used to classify American manufacturing at the most detailed level that’s commonly used by the government.

The new Labor Department report tracked labor productivity, output, and a variety of related performance indicators for 86 manufacturing sectors. Exactly 16 managed to boost both their labor productivity and inflation-adjusted output in 2016. One sector grew in real terms with no improvement in labor productivity (motor vehicle bodies and trailers). But fully half – 43 – recorded falling productivity and falling output. The rest were judged to have either become less productive while growing after inflation, or more productive while contracting in real terms.

Moreover, as was the case the previous year, the lists of winners and losers aren’t what you’d expect. In the former (higher productivity and price-adjusted growth) we see for example fabric mill products; saw mill products; petroleum and coal products; lime and gypsum products; iron and steel mill products; miscellaneous non-ferrous metals; and paints, coatings, and adhesives. Rightly or wrongly, few would make many rosters of “industries of the future.”

Other high quality labor productivity industries appear less surprising – like computers and parts, plastics resins, and agricultural chemicals (the best performer when you add up productivity and output growth). But can you really imagine an American president rewarding any company in the latter category with a factory visit?

The list of low quality labor productivity industries is at least as surprising. It includes pharmaceuticals and medicines, metal working machinery (which contains machine tools and related products), turbines and power generation equipment, motor vehicles (the sector whose growth has led the manufacturing comeback for most of the current economic recovery), semiconductors and electronic components, and aerospace products. The worst performer on a combined basis was audio and video equipment.

Overall, only 27 of the 86 manufacturing sectors surveyed improved their labor productivity last year, whether they expanded output or not. Fifty nine suffered labor productivity declines and, again, labor productivity among motor vehicle body and trailer makers flat-lined.

A final point: Never forget that, if anything, these bleak results are probably overstating American manufacturing’s productivity performance. For the Labor Department states that the offshoring of manufacturing production has boosted industry’s labor productivity figures by more than 20 percent annually between 1997 and 2006. (Here’s a layman’s explanation.) Apparently, the Department hasn’t examined the situation for later years, but it’s tough to avoid concluding that, if the nation is serious about solving its manufacturing productivity problem, ending the longstanding offshoring focus of U.S. trade policy would be a great place to start.

(What’s Left of) Our Economy: Productivity as the Main Manufacturing Job Killer Debunked Again

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automation, BLS, Bureau of Labor Statistics, Department of Labor, Jobs, labor productivity, manufacturing, offshoring, productivity, Trade, {What's Left of) Our Economy

Here’s a curious phenomenon that America’s political leaders and media need to focus on more: Practitioners of what I call fakeonomics keep prattling on about how the nation’s trade policy has almost nothing to do with the woes of domestic manufacturing and its workers, and that more automation and other forms of productivity gains are almost entirely to blame. At the same time, the official (and most authoritative) data keep proving them wrong. Just look at the latest figures, from this morning’s government report on America’s labor productivity.

These figures – from the Labor Department’s Bureau of Labor Statistics (BLS) – measure how many hours of human work it takes the U.S. economy to produce a given quantity of output. So although they don’t directly gauge the role being played by machines and software of all kinds in American industries (including manufacturing), they’re no doubt an excellent proxy for automation levels and how they’re changing. In other words, if labor productivity is rising at a respectable rate, then it’s reasonable to conclude that at least lots of job loss is indeed attributable to the adoption of labor-saving technologies – as opposed to more net imports or more job offshoring. And the opposite holds logically, too,

As I’ve written, BLS itself admits that its published numbers likely overstate labor productivity growth for the whole economy – and therefore, it would seem, the automation rate. But even leaving aside this flaw, the new numbers once again show that “respectable” is the last adjective that’s appropriate to describe improvement lately in this gauge of efficiency.

BLS’ new figures for the fourth quarter of 2016 and for that full calendar year incorporate comprehensive revisions going back to 2012. Given how many quarterly and annual figures have been updated, the most efficient way to show how miserable productivity growth has been recently, and how weakly it’s correlated with manufacturing employment, is to show how the previous figures for the last three economic recoveries before the new adjustment and after it. (As discussed before, comparing economic performance during similar phases of a business cycle – e.g., recoveries versus recoveries, or recessions versus recessions – is the best way to get apples-to-apples data.)

Here are the manufacturing employment and manufacturing labor productivity changes for the expansion of the 1990s (as presented in this previous post):

manufacturing employment: -0.38 percent

manufacturing labor productivity: +46.78 percent

And here are the results for the shorter expansion of the 2000s (taken from the same post):

manufacturing employment: -12.44 percent

manufacturing labor productivity: +41.08 percent

And here are the results reported in that post for the current expansion – which has been longer than that of the previous decades, but not quite as long as its 1990s predecessor:

manufacturing employment: +4.68 percent

manufacturing labor productivity: +22.88 percent.

Where do the new revisions leave us? Manufacturing employment is now up 5.24 percent. And the sector’s labor productivity is now up 22.70 percent. In other words, it’s productivity growth has been slightly weaker than previously estimated – when it was already historically lousy.

It’s hard to escape the obvious conclusion: It’s high time for globalization cheerleaders to stop letting trade off the hook for major manufacturing job loss – and transition to work that’s actually productive.

(What’s Left of) Our Economy: So Productivity is the Main Manufacturing Jobs Killer?

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Employment, Jobs, labor productivity, manufacturing, non-farm business, non-farm employment, productivity, Trade, Trump, {What's Left of) Our Economy

If you’ve been following the increasingly loud national debate on U.S. trade policy that’s been supercharged by President Trump’s election, you’ll be really surprised by the results of this morning’s latest report from the U.S. Labor Department on America’s labor productivity. And if you haven’t been following the debate, you should be – as both trade policy generally and the productivity angle are really important for the nation’s future prosperity.

The big surprise (which has actually been unfolding for years now): On the one hand, folks who support current trade policies (meaning nearly the entire political, business, and media establishments in this country) insist that the president is wrong to blame these policies for the steep manufacturing job drop the nation has experienced for so long. Instead, they argue, productivity growth is the real culprit – manufacturers are using technology and better management to produce more and more goods with fewer and fewer workers. (Do I really need to provide links?) And complaining about technological progress and managerial improvements makes little sense – at best.

On the other hand, labor productivity – a relatively narrow but still crucial measure of efficiency, which is widely regarded as the prime long-term driver of American living standards – has been growing ever slower for many years now, even as manufacturing employment has tanked. The relationship certainly doesn’t track exactly over the short-term. But long-term, it strongly indicates that something other than better productivity has hammered the manufacturing labor market.

For example, during the 1990s economic expansion, when manufacturing employment dipped by only 0.38 percent, manufacturing labor productivity rose by 46.78 percent. (We’re going to compare expansions because that method yields the best – i.e., apples-to-apples – data.) During the shorter 2000s expansion, many more manufacturing jobs were lost – 12.44 percent of the nation’s remaining total. But the sector’s labor productivity improved by only a little less – 41.08 percent.

During the current economic expansion, which is still more than two years shorter than its 1990s predecessor but nearly two years longer than the 2000s expansion, manufacturing employment has actually risen by 4.68 percent. But industry’s labor productivity is up by just 22.88 percent. That’s less than half the rate of the 1990s expansion, which saw hardly any manufacturing job loss.

As for the latest manufacturing labor productivity figures – during a period when manufacturing employment has resumed falling – they’ve been miserable. In the second quarter of last year, it fell sequentially by 0.50 percent on an annualized basis. In the third quarter, it inched back up 0.04 percent. Finally, as reported this morning, manufacturing productivity increased by 0.72 percent.

In the rest of the economy (technically the non-farm business sector, according to the Labor Department), labor productivity has risen faster over the short run. After declining sequentially by an annualized 0.15 percent in the second quarter of last year, it rebounded by 3.49 percent in the third. Even better, that number was revised significantly upward – from 3.03 percent.

Yet that third quarter jump could well be an anomaly. Today’s preliminary fourth quarter figure was down to a 1.29 percent annualized gain, and during the current economic recovery, overall labor productivity has advanced by only 7.96 percent. The comparable numbers for the previous two recoveries? 23.01 percent and 16.07 percent, respectively.

Nothing has been heard from President Trump about the productivity growth slowdown, but he has certainly expressed alarm about the state of domestic manufacturing – historically, the American economy’s productivity growth leader. Because productivity growth is so central to national economic success, he’ll need to focus even more intently and precisely on such issues if he wants his presidency to go down as an historical winner.

(What’s Left of) Our Economy: Latest Data Show America Still Has a Big Productivity Problem

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2016 election, labor productivity, living standards, manufacturing, multi-factor productivity, productivity, {What's Left of) Our Economy

There’s been so much earth-shaking political news in the last few weeks that I’ve neglected some of the key U.S. economic data series I’ve been following. Let’s rectify that with some abbreviated updates, starting with the productivity statistics that are the most widely followed: the labor productivity figures.

These data measure the American economy’s output in terms of just one input (worker hours), and therefore don’t tell us nearly as much as the multi-factor productivity numbers, which look at capital, material, technology, and a variety of other ingredients of what businesses turn out. But the labor figures come out on a much timelier basis, and are widely regarded as a gauge of the nation’s ability to improve living standards on a sustainable basis.

So it was definitely goods news that these numbers went up in the third quarter (at least preliminarily) on a sequential basis for the first time in four months. The preceding three-quarter stretch of sequential declines was the first such period since 1979 – which few Americans who lived through it remember fondly. But in the third quarter of this year, that string was broken, and labor productivity rose by 3.03 percent on an annualized basis. That was the best such performance since the 4.09 percent annualized sequential advance in the third quarter of 2014. And a little bonus: The second quarter’s most recent 0.60 percent decline reading at an annual rate was revised up to a 0.15 percent dip.

Sadly, though, this uptick still leaves the current economic recovery as a major labor productivity laggard. Here’s how it compares with its two predecessors:

1990s recovery: +23.01 percent

2000s recovery: +16.07 percent

current recovery: +7.50 percent

And let’s not forget – the current recovery is already longer than the 2000s expansion.

Manufacturing’s third quarter labor productivity growth (just under one percent annualized over the second quarter) wasn’t nearly as good as the overall U.S. number (which measures the performance of non-farm businesses). But manufacturing’s over the last year hasn’t been nearly as bad – though its second quarter sequential labor productivity loss was revised down to a 0.50% decline.

At the same time, manufacturing’s productivity gains during this expansion have been pretty feeble compared to its recent predecessors as well, as the numbers make depressingly clear:

1990s recovery: +46.78 percent

2000s recovery: +41.08 percent

current recovery: +22.93 percent

If you’re thinking to yourself something along the lines that “I didn’t hear much about productivity during this last presidential campaign,” you’re absolutely right. Both major party candidates did, however, speak continually about the need to revive domestic manufacturing. The chattering classes on both sides of the aisle seem convinced that this goal is (take your pick) incredibly cynical or incredibly naive. That’s a sure sign that they’ve been thinking even less seriously about productivity – and about the leadership role even a stagnant manufacturing sector has unmistakably been playing.

Tomorrow: the latest real wage figures.

And of course I hope everyone had a great Thanksgiving!

(What’s Left of) Our Economy: Still More Evidence of Flagging Manufacturing Productivity

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labor productivity, manufacturing, multi-factor productivity, productivity, {What's Left of) Our Economy

In April, I reported on the government’s release of detailed, industry-by-industry figures for labor productivity growth (or contraction!) in manufacturing, and noted that “these new 2015 figures show a head-scratching list of out-performers, mediocrities, and laggards. Specifically, the champs include lots of sectors that few would consider ‘high tech’ or “industries of the future’ or ‘knowledge-intensive,’ and the mediocrities include many that would be lumped into those glitzy categories.”

Today came comparably detailed statistics on multi-factor productivity in manufacturing – a broader measure of efficiency – and the results (for 2014, since multi-factor productivity takes longer to calculate) are at least as puzzling. The reasons are similar, too: They’re arguably strange enough, including over the long term, to warrant rethinking concepts like “advanced manufacturing.”

To recap, labor productivity tracks the amount of goods and services produced for each hour on the job by American workers. Multi-factor productivity looks at that same output-per-hour question, but measures the contribution of many other inputs as well, like capital and energy, and materials.

Because technology is so widely assumed to be the big driver of productivity – and multi-factor productivity in particular, you’d think that the list of 2014’s biggest winners in terms of annual growth would dominated by glitzy, tech-ie, futuristic type stuff. And how wrong you’d be!

Here they are, along with their specific 2014 figures:

magnetic computer drives: +7.4%

audio and video equipment: +7.3%

seafood product preparation & packaging: +7.1%

miscellaneous textile mill products: +6.2%

misc leather products: +5.6%

electric lighting +4.5%

household appliances +4.5%

misc furniture-related products: +4.5%

petroleum & coal products: +4.4%

basic chemicals: +4.1%

soaps/cleaners/toiletries: +3.2%

boilers/tanks/shipping containers: +3.1%;

textile & fabric finishing mills: +3.1%

Even the electronics items don’t scream “Silicon Valley!” It’s more like “computer hardware that mainly went to Asia long ago.” And what were the ten biggest productivity losers of 2013-2014?

tobacco processing: -9.8%

agricultural chemicals: -8.3%

miscellaneous transport equipment: -8.3%

ship & boat-building: -7.2%

apparel knitting mills: -4.9%

resin, rubber & artificial fibers: -4.4%

computer & peripheral equip: -4.3%

grain and oilseed milling: -3.5%

iron & steel mills: -3.1%

dairy products: -3.0%

communications equipment: -2.9%

household & institutional furniture: -2.9%

This list looks a little more as expected. But what’s communications equipment doing on it? That includes all the advanced internet gear. And iron and steel and resin are huge producers of high value goods.

Would looking at longer-term trends yield more comforting results? You be the judge. Here are the top ten performers when it comes to average annual multi-factor productivity growth between 1987 and 2014:

computer & peripheral equipment: +12.8%

semiconductors & electronic components: +9.6%

communications equipment +2.9%

audio & video equipment: +2.7%

magnetic computer drives: +2.1%

household appliances: +1.6%

miscellaneous transport equipment: +1.2%

coating/engraving/heat-treating metals: +1.3%

glass & glass products: +1.1%

electronic instruments +1.1%

tied at 1.0 percent: misc furniture-related products; motor vehicle parts; machine shops/threaded products; iron & steel mills; miscellaneous non-metallic mineral products; agricultural chemicals

It’s certainly good to see communications equipment and semiconductors up there. The rest? Not so sure about them.

The list of ten worse 1987-2014 annual averages seems even more sensible. Or at least much of it:

pharmaceuticals & medicines: -2.2%

cut & sew apparel: -1.9%

accessories/miscellaneous apparel: -1.7%

miscellaneous leather products: -1.1%

apparel knitting mills -1.0%

leather & hide tanning -1.0%

tobacco products: -0.9%

hardware: -0.8%

bakeries/tortilla products: -0.7%

paints, coatings & adhesives: -0.6%

textile finishing mills: -0.5%

footwear: -0.5%

You’re not alone, though, if you were stunned to see pharmaceuticals at the top of this list. That’s about as high-value and research-intensive as you get. And domestic producers face lots of foreign competition. At the same time, as I’ve noted in my posts on industries dependent on government subsidies, pharma benefits from gargantuan levels of public sector support for health care. Could there be some cause-and-effect working here?

Optimists can legitimately point out that these multi-factor productivity numbers are two years old. But overall manufacturing multi-factor productivity fell annually for three of the four years through 2014, and is actually down on net since 2005. Also bearish:  Although it’s often (and not completely unreasonably) claimed that the growth of intangibles-based services industries make economy-wide productivity data suspect, no such complications should be plaguing the manufacturing numbers. Consequently, there’s a heavy burden of proof on bulls who claim that a turnaround on this critical front in the cards soon – much less that it’s already begun.

(What’s Left of) Our Economy: Productivity Figures Could be Flashing “Disaster”

Tags

Labor Department, labor productivity, multi-factor productivity, productivity, recovery, {What's Left of) Our Economy

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.

(What’s Left of) Our Economy: Productivity Growth Now Stuck in Reverse

Tags

labor productivity, manufacturing, multi-factor productivity, productivity, productivity growth, {What's Left of) Our Economy

Since America’s productivity growth has been terrible for several years, it’s surely big news that today’s Labor Department report on this measure of efficiency was almost historically terrible.

In its release on labor productivity (for the second quarter of this year), the department announced that the U.S. economy’s ability to turn out a unit of goods or services per hour worked fell sequentially for the third straight quarter. A performance that bad hasn’t been registered since 1979 – when under then-President Jimmy Carter, the nation was struggling with double-digit inflation and unemployment.

These results are preliminary, and therefore the final statistics could be better. But since American businesses keep on hiring at a relatively healthy clip (as revealed by last Friday’s jobs report), and the U.S. economy keeps growing slowly (as revealed in the latest gross domestic product report), a significant upward revision would be a major surprise.

It’s also possible that when we get second quarter data on multi-factor productivity, which gauges efficiency based on several inputs in addition to labor, the picture will look brighter. But these multi-factor numbers won’t be out until next year, since they take longer to calculate. And so far, they’ve been no better than the labor productivity data.

The new Labor Department report presents four sets of figures deserving attention. First came the actual second quarter results – which showed that non-farm business labor productivity dropped by 0.50 percent at an annual rate from first quarter levels, and that manufacturing’s performance (a subset of non-farm businesses) dipped by 0.20 percent.

Second came the revisions for the first quarter. The non-farm business figure stayed the same, at -0.60 percent annualized, but manufacturing saw its sequential labor productivity improvement upgraded from 1.30 percent at an annual rate to 1.50 percent.

Third, the government revised the last few years of annual productivity growth results, and, as with the first quarter manufacturing figure, these new overall numbers also came in a little better, while industry’s results were mixed:

Non-farm Business labor Productivity Growth    Old             New

2013                                                                     0.00%       +0.30%

2014                                                                   +0.80%      +0.80%

2015                                                                   +0.70%      +0.90%

Manufacturing Labor Productivity Growth         Old             New

2013                                                                  +0.70%       +0.20%

2014                                                                 +1.50%        +1.70%

2015                                                                 +0.20%        +0.30%

Finally, this morning’s productivity report permits a new comparison of the economy’s performance during the last few recoveries – the best way to measure trends over time. And here, the changes aren’t big, but they’re tilted to the downside – and the biggest negative revisions are in manufacturing:

Non-farm Business Labor Productivity Growth      Old           New

1990s recovery                                                     +23.01%    +23.01%

2000s recovery                                                     +16.08%    +16.07%

current recovery (through first quarter)                 +6.58%      +6.73%

Keep in mind, however, that the newest (second quarter) results drag the total improvement for this recovery down to 6.58 percent.

And now for the revisions to manufacturing labor productivity:

                                                                               Old              New

1990s recovery                                                  +49.96%      +46.65%

2000s recovery                                                  +41.09%      +41.07%

current recovery (through first quarter)            +24.85%       +22.82%

And the new second quarter results reduce the cumulative manufacturing improvement during the current recovery to 22.76 percent.

Some economists still believe that these official data are largely missing the productivity-boosting effects of new technologies, and they could still be right. But interestingly, I’m not seeing his objection nearly as much these days as in months and years past. A strong consensus seems to be consolidating that the U.S. economy – including its once productivity-leading manufacturing sector – in mired in a major productivity slowdown. There’s no consensus on how to fix the problem, but at least we seem to be moving past the denial stage.

(What’s Left of) Our Economy: New Report Suggests Historic Problems with Manufacturing Productivity

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Labor Department, labor productivity, living standards, manufacturing, multi-factor productivity, productivity, {What's Left of) Our Economy

For several months at least, major economists – though not major politicians – have worried about slumping American productivity growth, and with good reason: As I’ve written many times in covering the subject, improvements in this measure of economic performance represent the nation’s best hope for boosting living standards in a sustainable way, as opposed to relying on financial and similar gimmicks as during the previous bubble decade.

So it’s big news that this morning’s Labor Department report on multi-factor productivity in U.S. manufacturing provides the latest validation of these fears. It shows both that, by this broadest measure, America’s industrial efficiency fell in 2014 for the third time in four years and for the the fourth time during the current economic recovery, and that overall, manufacturing productivity change between 2011 and 2013 was much worse than previously reported.  Further, the new report suggests that manufacturing is losing its position as the U.S. economy’s productivity leader.

The exact numbers: Multi-factor manufacturing productivity – which measures the sector’s use of a variety of inputs – fell in 2014 by one percent. (These data come out with a longer time lag than those for labor productivity, which measures only one input.) It’s true that 2013’s figure was revised up, from a 0.7 percent decline to a 0.1 percent gain. But for 2012, multi-factor manufacturing productivity is now judged to have fallen by 2.8 percent, not 0.8 percent. That’s the biggest annual drop-off on record by a wide margin. (The data, though, only go back to 1987.)

Also making clear that manufacturing’s productivity struggles are no passing fancy are the numbers during the last few economic recoveries – the methodology that yields the best apples-to-apples results. Since the manufacturing multi-factor statistics are only published on an annual basis, and recoveries don’t respect the calendar much, these numbers won’t be perfect. But they’ll certainly be close enough.

During the 1990s economic expansion – which lasted from early 1991 to early 2001 – manufacturing multi-factor productivity increased by a total of 14.91 percent. The bubble decade expansion was shorter (late-2001 to late 2007), but manufacturing’s total multi-factor productivity growth was only a little slower – 14.73 percent. Through 2014, the current recovery had been even shorter – just five years. But so far, manufacturing’s multi-factor productivity has fallen by 1.29 percent.

Here, moreover, is a trend at least as disturbing: During the 1990s and 2000s expansion, manufacturing multi-factor productivity grew faster than overall non-farm business multi-factor productivity (which rose by 11.50 and 9.51 percent, respectively). But during the first five years of the current recovery, as manufacturing multi-factor productivity fell, non-farm business productivity kept rising – albeit by a slower 4.66 percent.

Subsequent figures could show these trends reversing themselves. But if they don’t, manufacturing will not only seem to be suffering serious productivity woes in its own right. It will start looking like a productivity laggard in an economy whose overall efficiency performance is faltering.