In a world that keeps reminding us it’s full of surprises both good and bad, why should official U.S. economic data – even data that rarely make headlines – be any different? So I suppose that I should have expected that the big news in a recent release on the broadest measure of productivity (which I was planning to write on basically in order to start closing the books on the Trump administration’s pre-CCP Virus economic record), turns out to be completely different than I could have foreseen. It has to do with the significantly revised – and worse – picture it draws of the U.S. economy’s performance in the 1990s, and specifically in manufacturing.
The new statistics from the Labor Department cover multi-factor productivity – which as the name implies, tries to measure efficiency according to how much in the way of all different kinds of inputs (like labor, capital, materials, and energy) are needed to generate a unit of output.
These figures attract less attention that the statistics that track the role of labor alone, because they come out much less often than the quarterly labor productivity numbers. But even given how much uncertainty surrounds the entire idea of gauging productivity, their breadth arguably makes them more important. And of course both measures of efficiency matter greatly because it’s been tough for anyone to figure out how a country achieves and maintains true economic health and sustainably rising living standards without strong productivity growth.
As known by RealityChek regulars, the best way to measure any economic trend or development entails comparing performance during similar phases of the economic or business cycle – that is, expansions or contractions. And before the latest manufacturing multi-factor productivity data came out (last Thursday), bringing the story through year-end 2019, here’s how the numbers for the last three expansions stacked up through 2018:
1990s expansion (1991-2000): +23.40%
bubble decade expansion (02-07): +11.74%
last expansion (10-18): -4.84%
So clearly, there’s not only been a big slowdown over time in manufacturing’s multi-factor productivity growth. During the expansion that was still underway through 2018, Americans had actually experienced multi-factor productivity decline.
Last Thursday’s report contained revisions, and although the slowdown story remained intact, look at the results for that 1990s expansion:
1990s expansion (1991-2000): +15.77 percent
bubble decade expansion (02-07): +11.72 percent
last expansion (10-18): -2.55 percent
Manufacturing’s multi-factor productivity growth turns out to have been about a third lower than previously thought. That’s huge! And the better figure for the latest expansion through 2018 doesn’t come close to compensating – especially since last year’s 1.6 percent annual drop dragged the expansion total decrease down to 4.14 percent.
But the revisions also shed new light on the Trump record per se, and in particular on its performance in multi-factor productivity terms versus that of the final three years of the Obama administration. And the Trump record comes out ahead.
Here’s what we knew along these lines before last Thursday’s report came out: The last two Obama years saw a total 3.18 percent drop in manufacturing multi-factor productivity, compared with a fractional 0.07 dip during the first two Trump years.
The new Labor Department revisions improve the Obama performance to a 3.03 percent decrease, but upgraded the Trump performance to a 1.56 percent increase.
And since these numbers now go through the end of 2019, they show that manufacturing multi-factor productivity over the last three Obama years sank by 1.95 percent, and over the first three Trump years declined by 0.11 percent (due to that lousy 2019).
Because as indicated above, measuring productivity growth is such an inexact science, and because the federal government’s career economists generally are so diligent, next year’s multi-factor productivity report could well contain still more surprising revisions. But as for that new dimmer view of the 1990s expansion, so often lauded as an economic near-Golden Age – I suspect it’s here for the duration.