(What’s Left of) Our Economy: A Big Productivity Data Surprise

Tags

1990s expansion, Barack Obama, Labor Department, labor productivity, manufacturing, multi-factor productivity, Trump, {What's Left of) Our Economy

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.

(What’s Left of) Our Economy: Some New Trump-Friendly Data on Manufacturing Productivity

Tags

Barack Obama, Labor Department, manufacturing, metals tariffs, multi-factor productivity, productivity, tariffs, total factor productivity, Trade, trade wars, Trump, {What's Left of) Our Economy

If I had a list of twenty top wishes, more timely U.S. government publication of the multifactor productivity statistics wouldn’t make the cut. All the same, I’d like to see the posting of this data sped up for several reasons, including:

>Multi-factor productivity (also called total factor productivity) is the broadest of the measures of economic efficiency tracked by Washington, purporting to show how much in the way of all kind of inputs are needed to produce a unit of economic output in a given time period; and

>although even stalwarts of the rarely humble economics profession agree that productivity is challenging to measure precisely, they also mainly tend to agree that the stronger a country’s productivity performance, the likelier that country’s population will be living standards rise on a sustainable, not bubbly, basis.

So even though the new detailed multi=factor productivity statistics released by the Labor Department late last week only bring us through 2018, they’re worth contemplating anyway – and even for those focused tightly on politics in this presidential election year. For these latest numbers somewhat further undercut widespread claims that President Trump’s tariff-heavy trade policies have been weakening American domestic manufacturing (which is strongly affected by trade), and indeed add to those overall economic metrics for which the Trump years have seen better performance than the Obama years. (As known by RealityChek regulars, the Obama administration holds an edge here.)

Let’s start with what the new Labor Department release says about how many of the industries it follows achieved multi-factor productivity growth during the last two Obama years and the first two Trump years (the best basis for comparison, since it examines time spans closest together in the same – expansionary – business cycle). Here are the numbers:

2015: 21 of 86

2016: 37 of 86

2017: 32 of 86

2018: 44 of 86

On average, these gains were considerably more widespread under the Trump administration. Also noteworthy: Although the number of multi-factor productivity growers dipped between the final year of the Obama administration and the first year of the Trump administration, that first Trump year featured no tariff increases. These moves didn’t begin until the early spring of 2018 – a year in which the numbers of productivity growers rose significantly.

Such figures by no means clinch the case that the tariffs helped domestic manufacturers – because a single year can’t make or break an argument; because trade policy was far from the only development influencing manufacturing; because none of the developments that do influence productivity work their magic in ways convenient for calendar-watchers; and because the 2018 tariffs only covered aluminum and steel.

Still, it’s hard to look at these productivity numbers and see any harm done to U.S.-based manufacturing by the tariffs – or by the very good reasons at the time for assuming that many more were on the way, with all their implications for business plans.

But what about actual multi-factor productivity throughout the entire manufacturing sector. Here’s what separate Labor Department data reveal:

last two Obama years combined:  -2.15 percent

first two Trump years combined: +0.84 percent

Another Trump edge, and another reason for doubting the “tariff-mageddon” claims concerning manufacturing.

The multi-factor productivity reports also handily present the numbers of manufacturing sectors that enjoyed overall output growth year in and out. These data make the Trump years look superior, too, and cast further doubt on the tariff opponents’ credibility:

2015: 50 of 86

2016: 31 of 86

2017: 44 of 86

2018: 55 of 86

Unfortunately, even if the multi-factor productivity data for 2019 (a slower growth year for domestic industry) were available, robust conclusions about the Trump manufacturing record on this front per se, and especially about the effects of the tariffs would be difficult for the fair-minded to draw. After all, that’s the year when major tariffs on Chinese goods were imposed, and therefore when the inevitable inefficiencies they created began. In other words, U.S.-based manufacturers were just at the start of efforts to make supply chain and other adjustments to the levies, not at the end of this process. And the CCP Virus’ arrival and all the economic distortions it’s produced will complicate analysis going forward.

Moreover, although it should be “needless to say,” I’ll make the point again anyway: Major changes in U.S. trade policy toward China and overall were vital both for economic, national security, and – as has become clear this year – health security reasons.

As a result, here’s the firmest conclusion I can draw: The stronger U.S. manufacturing’s performance in improving multi-factor productivity remains, the easier these needed trade wars will be to win at acceptable prices.

(What’s Left of) Our Economy: New Productivity Data Further Debunk “Tariffs Hurt” Claims

Tags

aluminum, aluminum tariffs, China, durable goods, fabricated metals products, inputs, Labor Department, labor productivity, manufacturing, metals, metals tariffs, multi-factor productivity, productivity, steel, steel tariffs, tariffs, Trade, trade law, World Trade Organization, WTO, {What's Left of) Our Economy

The Trump administration’s announcement last Friday of new tariffs on some metals-using manufactures imports was greeted with the predictable combination of chuckles and gloating from the economists, think tank hacks, and Mainstream Media journalists who keep insisting that all such trade curbs are self-destructive whenever they’re imposed.

If the critics bothered to look at the new official data on multi-factor productivity, however, they’d stop their victory laps in their tracks. For the Labor Department’s latest report on this broadest productivity measure utterly trashes their claims that the tariffs slapped on metals in early 2018 – which unofficially launched the so-called Trump trade wars – have backfired by undercutting most domestic American manufacturing.

In fairness, the Trump administration itself gave the trade and globalization cheerleaders lots of evidence for their triumphalism. Specifically, the levies were justified with statistics showing that various categories of goods made primarily of tariff-ed steel and aluminum had seen major surges of imports since the duties began. The obvious conclusion? Foreign-based producers of these products were capitalizing on their cheaper metals available to their factories to undersell their U.S.-based competition.

As a result, Mr. Trump decided to tariff some of these final products, too – to erase the advantage created for imports from less expensive steel and aluminum.

So in one sense, it’s tough to blame tariff critics for feeling vindicated about predictions that the metals levies might boost the metals-producing sectors themselves, but injure the far larger metals-using sectors. Ditto for their warnings that in an economy with so many connected industries, protection for one or a few would inevitably spur calls for such alleged favoritism by others, threatening a consequent loss of efficiency for all of manufacturing and even the entire economy.

Examine the issue in more detail, though, and you see that it’s entirely possible to arrive at radically different conclusions. For example, the new tariffs appear to be imposed on a limited set of products, and none of them (e.g., nails, tacks, wires, cables, even aluminum auto stampings) qualifies as a major industry. In other words, the chief metals-using industries, like motor vehicles and parts overall, aerospace, industrial machinery (many of which have been complaining loudly about the metals tariffs, even though their overall operational costs have been barely affected) were left out.

Finally in this vein, and as the critics imply, the new Trump tariffs also make the case for trade curbs on any final products whose significant inputs receive duties. Why indeed strap otherwise competitive domestic producers with higher prices for materials, parts, and components? This practice has been a major flaw in the U.S. trade law system, which has prioritized legal over economic and industrial considerations, since its founding. And in fact, my old organization, the U.S. Business and Industry Council, has been urging this reform since at least 2008.

Even better – to prevent cronyism from influencing such trade policy decisions, impose a uniform global tariff on all manufactures, or all non-energy goods.

But it’s just as important to point out a gaping hole in the longstanding argument that cheap imported inputs (including subsidized, and therefore artificially cheap imported inputs) are essential for the overall global competitiveness of U.S. domestic manufacturing. And the hole has been opened (or perhaps it’s more accurate to say, reopened, given this previous RealityChek analysis of earlier data) by those new multi-factor productivity statistics.

They only go through 2018 (such time lags explain why multi-factor productivity trends aren’t followed as closely as labor productivity trends). But they’re the broader of the two productivity measures, as they gauge the effect of many inputs other than hours worked. And via the table below, they make clear that even the wide open access domestic manufacturers enjoyed to artificially cheap metals and other imported inputs have played absolutely no evident role in improving industry’s health. In fact, there’s reason to conclude that the more access domestic industry had to such materials, parts, and components, the less productive it became.

                                                               Total mfg   Durable goods   fabr metals

1990s expansion (91-2000):                   +23.40%       +38.76%         +4.79%

bubble decade expansion (02-07):          +11.74%      +16.61%          +7.62%

current expansion (10-present):                -4.84%         -0.84%           -4.51%

pre-China WTO (87-2001):                   +22.18%      +37.72%           -3.32%

post-China WTO (02-present):               +6.72%      +17.17%           -2.05%

As usual, the time periods chosen to illustrate these trends consist (with one exception) of recent economic expansions (because they enable the best apples-to-apples comparisons to be made). And the 1990s expansion is the first one examined because the relevant Labor Department data only go back to 1987. The products chosen consist of all manufactured goods, durable goods industries (the super-category containing most of the big metals users), and fabricated metals products (the most metals-intensive sectors of all).

The table demonstrates that multi-factor productivity growth across-the-board has weakened dramatically from the 1990s expansion through the current – ongoing – expansion. The slowdown between the 1990s expansion and the previous decade’s expansion was moderate (and multi-factor productivity actually grew faster during the second in fabricated metals, though in absolute terms its improvement lagged badly). But during the current recovery, multi-factor productivity growth has been replaced in all three instances by multi-factor productivity decline. And crucially, during none of this time did any of these manufacturing categories face any shortage of imported inputs of any kind – subsidized or not.

Indeed, one event in 2001 greatly increased the supply of subsidized inputs – China’s admission into the World Trade Organization (WTO). For once China joined, the difficulty of using U.S. trade law to keep these Chinese products out of the U.S. economy became much greater.

Yet at the same time, as shown below, productivity growth was considerably weaker after China’s WTO entry than before in manufacturing overall, and in durable goods. And although its performance actually improved in fabricated metals, that industry’s performance was much worse in absolute terms.

Nor does the inclusion of the 2007-2009 Great Recession in the post-2002 China-related data (which violates the “apples-to-apples rule”) seem to have been a game changer – because the worst performances of all in each case, and by a mile, have been registered during the current expansion. Moreover, since the data stop in 2018, those current expansion results are dominated by the period preceding both the Trump metals tariffs and the Trump China tariffs (most of which target industrial inputs, as opposed to final products).

It’s entirely possible that, for various reasons, the multi-factor productivity statistics would have been even worse if not for the widespread availability of cheap imports. Or maybe multi-factor productivity isn’t much of a measure of manufacturing’s health? Both alternative explanations, however, seem pretty far-fetched (especially given the pre- and post-China WTO results).

Much likelier – as I argued in that post linked above – the availability of cheap inputs has helped retard productivity growth by enabling businesses to achieve cost-savings without investing in research and development into new products and especially processes, and without buying more efficient equipment (including software).

(What’s Left of) Our Economy: U.S. Manufacturing’s Productivity Lag Just Got Even Worse

Tags

BLS, Bureau of Labor Statistics, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, total factor productivity, {What's Left of) Our Economy

If there were two of me, I could have reported yesterday on both the new industrial production figures from the Federal Reserve and the new labor productivity data from the Bureau of Labor Statistics (BLS) that came out. Because progress in cloning tech has been incredibly disappointing, and since Washington keeps often pairing such releases, I had to choose one (the former). But the latter’s importance should never be forgotten, especially since it shows manufacturing’s performance on this crucial front has actually deteriorated, at least in a relative sense. This development, in turn, has big implications for President Trump’s tariff-heavy trade policies.

After all, these Trump levies, whether on metals or on products from China, increase cost pressures at various stages of individual companies’ production process or at various stages of industry supply chains when (as they often do) they cross national borders.

As a result, the companies involved can respond with various combinations of the following measures: They can increase the prices they charge to their customers (whether they’re other businesses, in the case of inputs used in producing goods and services, or consumers, in the case of the kinds of products sold by retailers). They can find alternative sources of supply (which rarely happens right away). They can eat the higher costs, and accept lower profits, in hopes of preserving market share. Or they can improve their productivity, and therefore offset the impact of higher costs through improved efficiency.

That last option is (which involves more than simple cost-cutting) is the best for the economy, including for workers, in the long run, since it’s a time-tested formula for boosting growth and living standards on a sustainable basis. But manufacturing’s deteriorating record in this regard indicates that American industry overall is failing this test.

To remind, labor productivity is the narrower of the two such measures of efficiency tracked by the BLS. It simply reveals how much of a particular good or service can be produced by the relevant workforce (adjusted for inflation) per each hour on the job. As the name implies, the broader measure, multi-factor productivity (also called total factor productivity) measures output per worker hour as a function of the use of many different inputs – e.g., capital and energy, as well as labor.

The manufacturing labor productivity lag becomes clear upon examining the latest results. It’s true that the sector’s first quarter sequential growth (at an annual rate) was revised up from 0.4 percent to 1.1 percent. But the comparable figure for non-farm businesses (BLS’ definition of the American economic universe for productivity measurement purposes) was much better – a 3.4 percent annualized gain revised up to 3.5 percent.

The gap widened further in the second quarter, at least according to yesterday’s preliminary results. Non-farm business labor productivity rose again, albeit at a slower 2.3 percent annual rate. But in manufacturing, labor productivity actually fell in absolute terms – by 1.6 percent at an annual rate.

Even more alarming are the longer-term trends, which are especially visible thanks to the labor productivity revisions going back to 2014 released by the Labor Department along with the preliminary second quarter results. Here are the pre-revision results for the last three economic expansions, including the one still ongoing, through the first quarter of this year. (RealityChek regulars know that the most useful economic analyses compare results during similar stages of the business/economic cycle.)

                                                                           Non-farm business   Manufacturing

1990s expansion (2Q 1991-1Q 2001):                 +23.74 percent      +45.86 percent

bubble expansion (4Q 2001-4Q 2007):                +16.59 percent     +30.23 percent

current expansion: (2Q 2009 thru prev 1Q19):    +12.18 percent        +9.59 percent

These numbers demonstrate how the growth rate of labor productivity in manufacturing has slowed much more dramatically than that of the overall non-farm business sector.

Here are the results for the current expansion incorporating the revised first quarter figures:

                                                                          Non-farm business    Manufacturing

1990s expansion (2Q 1991-1Q 2001):               +23.74 percent        +45.86 percent

bubble expansion (4Q 2001-4Q 2007):              +16.59 percent        +30.23 percent

current expansion: (2Q 09 thru revd 1Q19):      +12.16 percent          +9.64 percent

Manufacturing’s performance ticked up and the non-farm business sector’s performance ticked down, but the big picture didn’t change much. And now for the results incorporating the preliminary second quarter results:

                                                                        Non-farm business   Manufacturing

1990s expansion (2Q 1991-1Q 2001):              +23.74 percent       +45.86 percent

bubble expansion (4Q 2001-4Q 2007):             +16.59 percent       +30.23 percent

current expansion: (2Q 09 thru prelim 2Q19):  +12.80 percent         +9.19 percent

Because of the second quarter’s non-farm business growth and manufacturing’s decline, the gap between the two became even bigger – and manufacturing’s longer-term slowdown became even more dramatic. 

And as if this big picture wasn’t bad enough, let’s not forget that much of manufacturing’s recent recorded labor productivity gains have come from a methodological oddity that results in the offshoring of production strengthening the labor productivity results.  That’s the kind of productivity improvement that the domestic economy clearly doesn’t need.  And revealingly, for all the claims over the years that offshoring is a plus for that domestic economy, including for its workers, the evidence sure isn’t showing up in the manufacturing labor productivity data.   

An optimist could note that these preliminary second quarter results represented manufacturing’s worst readings since the first quarter of 2018, and that the second quarter results can still be revised upward. A pessimist could reply, especially regarding the latter, “They’d better be.”

(What’s Left of) Our Economy: U.S. Manufacturing’s Productivity Lag Keeps Worsening

Tags

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

They’re not as exciting as the trade data and the jobs data these days. In fact, they rarely generate any excitement. And this year, they had the misfortune of coming out on the 75^th anniversary of D-Day. All the same, last Thursday’s second set of government figures on labor productivity for the first quarter of this year matters because it strengthened the case for a disturbing trend: Although this measure of efficiency – and indirectly, success in fostering healthy growth and sustainably rising living standards – confirmed the initial encouraging results for the economy as a whole, manufacturing’s laggard status looks worse than ever..

As RealityChek regulars know, the labor productivity measured in last week’s report is the narrower of the two productivity gauges regularly published by the Department of Labor. As opposed to multi-factor productivity, which measures how much in the way of a variety of business inputs is needed to generate a unit of output, labor productivity only tells us how much each hour of work put in by an employee achieves that result. But the labor productivity figures come out on a timelier basis, so they’re understandably watched closely.

The release’s headline figure confirmed the solid labor productivity gain originally reported for the first quarter in the “non-farm business” sector – the Department’s definition of the American economic universe when it comes to productivity. Although the 3.4 percent annualized sequential rate of improvement was a little slower than the first 3.6 percent estimate, it remained the best such result since the 3.7 percent recorded for the third quarter of 2014. Moreover, it still left labor productivity growth accelerating since the third quarter of last year.

For manufacturing, however, the first quarter’s sequential labor productivity increase was revised way down – from a pretty good 1.7 percent to a dismal 0.4 percent.

Even worse, whereas non-farm business productivity improved because both output and hours worked rose (the productivity gain recipe we want to see), the much smaller increase for manufacturing stemmed from hours worked dropping even faster than output (the productivity gain recipe we don’t want to see).

As a result of this poor manufacturing performance, the labor productivity gap between industry and the rest of the economy has been widening – and not in a good way for industry. Here’s an updated table showing the total labor productivity gains for non-farm businesses and for manufacturing during the two previous economic expansions and the current expansion (in order to ensure apples-to-apples comparisons).

                                                               Non-farm business       Manufacturing

1990s expansion (2Q 1991-1Q 2001):     +23.74 percent         +45.86 percent

bubble expansion (4Q 2001-4Q 2007):    +16.59 percent        +30.23 percent

current expansion: (2Q 2009 to present): +12.18 percent          +9.59 percent

It’s worrisome enough that the non-farm business increases have been decelerating since the 1990s expansion. But the extent of the manufacturing slowdown has been nothing less than shocking. Indeed, during the current recovery, manufacturing has clearly lost its labor productivity leadership status – and by a considerable margin.

Alternatively put, even though the 1990s expansion and the current expansion have lasted roughly the same amount of time, the rise in non-farm labor productivity during this recovery has been only about half as fast, and that for manufacturing only about a fifth as fast.

American manufacturing has shown some important signs of revival under President Trump – especially in job creation and output (at least until recently). But whatever the results of Mr. Trump’s trade wars, unless its labor productivity performance improves dramatically, its comeback will remain sorely incomplete.

(What’s Left of) Our Economy: U.S. Productivity Growth Improves, but Remains Historically Weak

Tags

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

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.

(What’s Left of) Our Economy: Pssst! Some Good News on Productivity!

Tags

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

Here’s a peculiar new twist in ongoing media coverage and more general establishment commentary on the U.S. economy: The conventional wisdom among both these intertwined crowds holds that the American trade deficit doesn’t matter much economically. Yet the apparently poor trade numbers reported yesterday by the Census Bureau was the talk of these towns.

The conventional wisdom held by the establishmentarians also holds that productivity is incredibly important. Indeed, it’s widely described as a key to future prosperity. But the improving productivity figures released today by the Labor Department were virtually ignored.

Of course, a moment’s reflection reveals why. President Trump has made a very big deal out of the need to reduce the trade deficit, and the newest data indicate he’s failing. (Special note: You’ll be hearing more from me on this score very soon.) But Mr. Trump has said nothing about productivity. (That’s actually typical for politicians.) So even had the statistics been poor, there would have been no opportunity for a mass “Gotcha!” festival.

These latest numbers concern labor productivity which, as known by RealityChek regulars, is the narrowest of two productivity measures tracked by the Labor Department. But they’re also published in a much more timely fashion than the total factor (also called multi-factor) productivity statistics, which as their name implies, require collecting more information in order to calculate.

The improvement is most apparent upon examining recent annual changes in labor productivity (which tells us how many units of output a single person working for a single hour can turn out). The new figures bring the story up to the end of 2018, and show a year-to-year gain in the fourth quarter of 1.90 percent for non-farm businesses – the Labor Department’s American economic universe when it comes to productivity.

That increase may not sound like much, but it’s the biggest such advance since the first quarter of 2015 (1.60 percent), and the second biggest since the third quarter of 2010 (2.70 percent). And the trend has been upward since the second half of 2015.

Manufacturing’s labor productivity performance wasn’t quite so good. For the fourth quarter of 2018, it rose at a 1.00 percent annual rate. That increase represented a slowdown from the third quarter’s 1.50 percent. But even though industry’s productivity has been climbing only sluggishly in general since the beginning of 2016, that’s represented a major and positive change from the end of 2014 through 2015 – when manufacturing labor productivity fell on-year for five straight quarters.

Nonetheless, no one should assume that all’s well with labor productivity in America, either for non-farm businesses or for manufacturers. In fact, as the table below makes clear, the nation remains smack in the middle of a deep long-term labor productivity slump in relative terms. Specifically, over the last three economic expansions (the best way to measure trends over time, since it compares like stages of the business cycle), labor productivity gains for the non-farm business and manufacturing sectors have drifted steadily downward.

Especially discouraging: Although the current economic recovery is now just about as long as its 1990s predecessor, the cumulative non-farm business productivity rise for this expansion is less than half as strong. As for manufacturing, its labor productivity performance has been so weak (increasing by just over a fifth the rate of the 1990s expansion), that it’s lost its long-time productivity improvement lead.

When productivity improves strongly, all sorts of good things follow. In particular, workers’ wages can rise robustly without triggering inflation – which in an economy dominated by consumption, can help set the stage for equally vigorous, non-inflationary growth, and therefore more wealth for everyone to share. Does that sound boring to you? I’m shaking my head “No,” as well, which is why whether they keep getting overlooked or not, I’ll keep following the productivity news closely.

                                                                   Non-farm business          Manufacturing

1990s expansion (2Q 1991-1Q 2001)           +23.74 percent            +45.86 percent

bubble expansion (4Q 2001-4Q 2007)          +16.59 percent            +30.23 percent

current expansion: (2Q 2009 to present):      +11.28 percent              +9.70 percent

(What’s Left of) Our Economy: Manufacturing Labor Productivity Growth is Looking Like an Endangered Species

Tags

Bureau of Labor Statistics, Federal Reserve, Jerome Powell, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, recovery, {What's Left of) Our Economy

Federal Reserve Chair Jerome Powell stated yesterday that the U.S. economy is doing “very well.” Judging by the metrics that the central bank is supposed to focus on as a matter of law – inflation and the headline unemployment rate – that’s an eminently respectable claim. Based on another key measure of economic performance – labor productivity – it looks like whistling in the dark.

As known by RealityChek regulars, strong productivity growth is widely seen by economists as the best guarantor of sustainable future prosperity and rising living standards. And as also known, labor productivity is the narrower of the two such measures of economic activity tracked by the federal government.

But it’s the gauge that’s updated on the most timely basis, and the latest numbers – which came out last week – should be spurring alarm, not complacency.

These final (for now) results for the first quarter of this year both confirmed that output per person hour worked for the non-farm business sector (the broadest definition of the U.S. economy used in these studies) remains stuck in an historically slow-growth phase, and showed that labor productivity in manufacturing may be shifting into contraction.

The labor productivity performance of both these major sectors was revised down in the latest release from the Bureau of Labor Statistics (BLS). Rather than having grown by 0.70 percent on an annualized basis sequentially in the first quarter, labor productivity for non-farm businesses is now estimated to have advanced by only 0.40 percent. And in manufacturing, a 0.50 percent annualized increase is now judged to have been a 1.20 percent decrease. That’s its third such drop in the last five quarters.

A glass-half-full analysis would point out that the new non-farm business figure was better than that for the fourth quarter of last year (0.30 percent), and that the manufacturing fall-off followed a 4.20 percent fourth quarter jump.

But the new BLS report also presented manufacturing revisions going back to 2008, and they make clear that its labor productivity performance during this period has been far worse than even previously thought. (And it was already really bad.)

Let’s concentrate on how the new statistics have changed the picture for manufacturing labor productivity during the current recovery, and compare those results with those for previous recoveries – since such analyses yield the best, apples-to-apples, results.

Before the new data came out, manufacturing labor productivity during this expansion was reported to have grown by a total of 9.69 percent. That was less than a third of the rate achieved during the recovery of the early 2000s – which was also known as the Bubble Recovery that helped trigger the financial crisis and ensuing recession, and which last only six years versus. The current recovery is approaching its ninth anniversary.

And during the nearly ten-year long expansion that began in the early 1990s, manufacturing labor productivity surged even more strongly – by 45.86 percent.

The new manufacturing labor productivity growth number for the current expansion? Only 8.28 percent! That’s a downgrade of more than 14.50 percent!

Moreover, although the non-farm business labor productivity growth rate for the current recovery wasn’t revised down nearly as much – from 9.70 percent to 9.62 percent. But this figure, too, pales next to those of previous recoveries. During the bubble expansion, non-farm business labor productivity rose by a total of 16.03 percent. During the 1990s expansion, the rate was 23.25 percent.

By the way, don’t put too many hopes in the broader productivity measure – multi-factor productivity – to come to the rescue. Those numbers haven’t been much better.

Some productivity students have been arguing that it’s only a matter of time, and that recent technological advances will soon start super-charging productivity growth after a slow start just as they did in an earlier era of transformative technological change – the 1920s.

These optimists had better be right. Because if not, the only way to return American growth and living standards gains to their historic rates of improvements will be to flood the economy with credit in order to crank up spending. Feel free to scream if the date “2008” means anything to you.

(What’s Left of) Our Economy: America’s Productivity Blahs Continue

Tags

bubble decade, Financial Crisis, Great Depression, labor productivity, manufacturing, multi-factor productivity, non-farm business, productivity, {What's Left of) Our Economy

Although productivity is widely seen by informed students of the U.S. economy as the biggest key to ensuring the nation’s prosperity over the longest run, the release of the government’s new figures on these measures of efficiency rarely generates many headlines. Last week was no exception, but as always, they’re worth considering in detail.

In this case, last Thursday’s new report on labor productivity – the most current but narrower of the two measures  — were most notable not for the preliminary estimate of the results for the first quarter of this year (which we’ll summarize below), but for revisions going back to 2013. And unfortunately, these resulted in little change to the feeble performance already reported in creating a unit of output per each person hour worked. Indeed, for manufacturing, the revisions amounted to a not-negligible downgrade.

Here are the two sets of figures for annual percentage gains in labor productivity between 2013 and 2017 for the non-farm business sector – the government’s main proxy for the entire American economy.

  Previous results                                                              Revised results

2013 +0.3 percent                                                               +0.3 percent

2014 +1.0 percent                                                               +1.0 percent

2015 +1.3 percent                                                               +1.2 percent

2016  -0.1 percent                                                                          0

2017 +1.2 percent                                                                +1.3 percent

Like I said, no important differences here. In fact, on net, the revisions brighten the picture marginally. Not so for manufacturing:

  Previous results                                                                Revised results

2013 +0.9 percent                                                                 +0.9 percent

2014    0                                                                                        0

2015 +0.2 percent                                                                 +0.3 percent

2016 +0.4 percent                                                                 -0.4 percent

2017 +0.7 percent                                                                +0.4 percent 

Here we see a marked weakening, especially for the last two years. And the extent of manufacturing’s lousy record is even clearer from comparisons among the current economic recovery and its two predecessors.

non-farm business                                                                  manufacturing

90s expansion: (2Q 1991 to 1Q 2001) +23.25 percent          +45.86 percent

bubble expansion (4Q 2001 to 4Q 2007) +16.03 percent      +30.23 percent

current expansion: (2Q 2009 to present)  +9.70 percent          +9.69 percent

Not only has labor productivity growth slowed much more dramatically in manufacturing than in the rest of the economy between the expansion of the 2000s – which of course ended in the worst national and global financial crisis since the Great Depression — and the current expansion. Manufacturing labor productivity actually has been growing more slowly in absolute terms during this recovery than non-farm business labor productivity. And it’s not as if non-farm business labor productivity has been killing it.

Those preliminary results for the first quarter of this year extend this narrative. On a quarter-to-quarter basis, both non-farm business labor productivity and manufacturing labor productivity increased – by 0.7 percent and 0.5 percent at an annual rate, respectively. But the revisions revealed a major slowdown in manufacturing labor productivity growth on a quarterly basis (from a downwardly revised — and kind of fishy — 4.5 percent on an annual basis) and a slight pickup in non-farm business productivity growth (from no growth at all at the end of last year).

The latest results for the broader measure of productivity growth – multi-factor productivity, which includes a range of inputs broader than just worker hours – showed a small uptick, too. So even though they’re not as current as the labor numbers, maybe we’re seeing the beginnings of lasting improvement in productivity growth generally speaking. But as the recovery-to-recovery data still make clear, the United States still has a long way to go before it genuinely shakes off its productivity blahs.

(What’s Left of) Our Economy: U.S. Productivity Growth Remains Far from Great Again

Tags

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

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.