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.