(What’s Left of) Our Economy: U.S. Productivity Growth Keeps Lagging Historically, but has Bumped Under Trump

Tags

Barack Obama, election 2020, labor productivity, manufacturing, multifactor productivity, non-farm business, productivity, Trump, {What's Left of) Our Economy

Sure, they’re lagging indicators, and don’t tell us much, if anything, about whatever coronavirus effect the American economy might face. Still, today’s new U.S. government data on labor productivity both say something about where the economy has been until recently before pandemic fears hit, and provide a noteworthy point of comparison between the record of President Trump and his White House predecessor, Barack Obama. And although the news for the economy isn’t good at all (especially for manufacturing), the findings should cheer Mr. Trump and his supporters.

The figures, from the Department of Labor’s Bureau of Labor Statistics (BLS), cover labor productivity – a gauge of output of a good or service per each hour a worker has been on the job trying to create it. It’s the narrower of the two productivity measures calculated by BLS (the other, multifactor productivity, reports on output as a function of many more inputs, like capital and technology), but it’s released on a timelier basis. And the latest numbers not only bring the story up to the fourth quarter of last year (preliminarily). They also incorporate revisions – some of which go back to 1947!

As a result, it’s now possible to take a new look at the nation’s productivity performance during the last three economic recoveries – the most economically valid, apples-to-apples way of comparing trends over significant time spans.

And here’s where the news isn’t good, as will be made clear from the following two tables. The first shows the cumulative productivity changes during those last three expansions before these latest revisions:

                                                                        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 final 3Q 19):     +12.74 percent        +9.42 percent

The second shows the same developments with the revisions.

                                                                         Non-farm business    Manufacturing

1990s expansion (2Q 1991-1Q 2001):              +23.75 percent        +44.68 percent

bubble expansion (4Q 2001-4Q 2007):             +16.58 percent        +30.92 percent

current expansion (2Q 09 thru final 3Q 19):     +12.74 percent          +6.32 percent

current expansion (2Q 09 thru prelim 4Q 19):  +13.44 percent          +6.11 percent

The big takeaway is that although the revisions leave the picture for both non-farm businesses (BLS’ main definition of the American economic universe) and manufacturing unchanged in terms of a long and substantial productivity slowdown, they downgrade manufacturing’s performance during the current recovery substantially. In fact, industry’s labor productivity growth is now reported to be about a third slower than previously thought.

Since it’s a presidential campaign year, I thought a Trump-Obama comparison would be appropriate, and here’s where the good news for Trump World, at the very least, comes in.

                                                                   Non-farm business          Manufacturing

last 12 Obama quarters                                 +3.31 percent                -2.27 percent

first 12 Trump quarters                                 +4.17 percent                -0.05 percent

The time frames used make sense because they represent identical numbers of quarters for each President that are also the closest to each other in the current (expansionary) business/economic cycle. The productivity performance under Mr. Trump hasn’t been gangbusters historically speaking for either sector of the economy. But it’s clearly been better than that registered during the most comparable Obama period.

Since most serious students of the economy agree that there’s lots of room for improvement in measuring productivity growth (especially for the services sectors), it would be quite the stretch for Mr. Trump to claim credit for these favorable numbers. Yet when have such substantive considerations ever stopped politicians from pretending they wield such power – for economic good or ill? So unless the productivity arrows start moving down markedly, Americans might finally hear something from the President about productivity before too long.

(What’s Left of) Our Economy: Economic and Political Productivity Puzzles

Tags

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

It’s U.S. labor productivity data time – in other words, the point at which all Americans interested in their economy and its future should be examining the latest news about a major measure of economic efficiency that speaks volumes about the nation’s chances of boosting living standards on a healthy, sustainable, rather than bubble-ized and therefore dangerous, basis.

And the Labor Department figures released last week continue to show a split personality performance: decent results for non-farm businesses (the Department’s main category for the economy as a whole), and woeful, worsening results for manufacturing.

According to these revised numbers for the second quarter of the year, output per each hour on the job by each worker (the narrower but most timely of two productivity measures tracked by Labor), increased over the first quarter’s level by the same 2.3 percent annual rate initially reported. In manufacturing, however, the originally published 1.6 percent annualized sequential decline is now judged to be a 2.2 percent drop – the worst such performance since the four percent nosedive in the third quarter of 2017.

As shown in the table below, the new data leave the current economic expansion (which began in mid-2009) as a major labor productivity laggard. After all, the cumulative growth rate for non-farm businesses is little better than half that of the 1990s expansion, even though they lasted for approximately the same period of time. And it’s even slower than the labor productivity growth rate of the bubble decade’s expansion – which was about 40 percent shorter. As for manufacturing, the table makes clear that the deterioration has been much greater.

                                                                          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 prelim 2Q 19):  +12.80 percent      +9.19 percent

current expansion (2Q 09 thru revised 2Q 19):     +12.80 percent      +9.02 percent

Nonetheless, the new figures do contain some good news for President Trump. So far during his administration, overall labor productivity has grown faster than during the last comparable period under former President Obama. Manufacturing labor productivity has grown more slowly, but the difference is only fractional:

                                                                         Non-Farm business   Manufacturing

last 8 Obama quarters:                                         +1.33 percent        +0.38 percent

first 8 Trump quarters:                                         +3.46 percent        +0.25 percent

Even better, although the second quarter’s non-farm business annualized 2.3 percent labor productivity growth was lower than the first quarter’s 3.5 percent, the trend under Mr. Trump has generally been up. During those last two Obama years, the growth rate slowed significantly. In manufacturing, however, the momentum picture has been the reverse – modest but overall strengthening under Obama, major weakening under Mr. Trump.

One reason for this recent manufacturing deterioration could actually be good news politically for the President and his supporters: During his months in office so far, manufacturing workers’ compensation cumulatively has risen at more than twice the rate (8.52 percent) than during the final eight quarters of the Obama administration (4.06 percent). And workers, of course, are often voters.

Yet this development brings up a real puzzle: When it comes to non-farm businesses, the Trump productivity performance has been considerably better than the Obama even though compensation under the current administration has also risen much faster (11.30 percent cumulatively) than during the comparable period under the previous administration (6.96 percent).

On the one hand, puzzling productivity results aren’t all that puzzling, since most economists admit that it’s the performance measure that’s the most difficult to track. On the other, these Obama-Trump puzzles look pretty mysterious even by productivity’s standards.

(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: A Sort of Mixed U.S. Productivity Report

Tags

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

This morning’s government report on labor productivity for the first quarter of this year contained a valuable reminder that this measure of the economy’s efficiency – and indirectly, its success in fostering healthy growth and sustainably rising living standards – can improve for good and not-so-good reasons. And the complicating factor in an otherwise strong set of data came in manufacturing.

Labor productivity, as RealityChek regulars know, 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.

As suggested above, the overall figures were encouraging. For non-farm businesses (the Labor Department’s U.S. economy universe), labor productivity rose by 2.40 percent between the first three months of 2018 and the first three months of this year. That was the best such performance since the third quarter of 2010 (2.70 percent), and especially good news since that previous mark came much earlier in the current business cycle (i.e., much sooner after the end of the last severe recession), when robust productivity gains are generally easier to generate.

Moreover, these labor productivity advances have accelerated sequentially since the third quarter of last year.

In addition, on a quarter-to-quarter basis, the first quarter’s 3.60 percent increase at an annual rate was this metric’s best performance since the 3.70 percent rise in the third quarter of 2014.

Manufacturing’s 1.20 percent productivity improvement over the first quarter of 2018 wasn’t stellar, but pretty much in line with recent readings. The new quarter-to-quarter reading, though, was solid; industry’s labor productivity was up 1.70 percent annualized – the best such performance since the 4.40 percent pop in the fourth quarter of 2017. And the rate of increase here had sped up since the third quarter of last year as well.

The fly in the ointment concerns why first quarter manufacturing labor productivity even rose at that solid quarter-to-quarter pace. A big part of the reason was that manufacturing output fell during this period – by one percent at an annual rate. In other words, the sector reduced the number of hours its workers worked, but it also saw production fall – just more slowly. That result is certainly better than output falling just as fast or faster than hours worked. But it doesn’t qualify as “good.”

The latest sequential manufacturing annualized output decrease is the first since the 1.50 percent decline in the third quarter of 2017 (when the sector’s productivity sank by a recessionary 4.40 percent at an annual rate). Industry’s labor productivity rebounded sharply in the following quarter (by 4.20 percent annualized, while output shot up by 5.70 percent). So maybe this latest lousy output number is just another bump in the road.

But it’s that combination that represents the best possible labor productivity outcome: Both output and efficiency rising at the same time.

It’s also important to remember, however, that both the economy overall and the manufacturing sector still aren’t close to returning to their labor productivity performances of the recent past. Here are the updated comparisons between the current recovery, and its two most recent predecessors:

                                                                 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):    +12.17 percent          +9.96 percent

The newest quarterly figures brighten the picture slightly. But boasting about the U.S. economy should definitely be muted until these productivity numbers start turning around dramatically.

(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: Productivity Growth Slowdown Keeps a Cloud Over U.S. Manufacturing

Tags

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

As made clear once again yesterday by two releases of significant statistics, American manufacturing under the Trump administration remains a puzzling good news/bad news story.

Yesterday, as reported here, the Federal Reserve came out with industrial production data for July showing that domestic industry’s real output growth has sped up during the Trump Era, and remains strong even in those metals-using industries supposedly suffering because of the President’s metals tariffs. These findings are also consistent with figures showing that manufacturing employment under this administration has growing faster than overall employment – increasing its share of the latter from 8.49 percent in February, 2017 to 8.55 percent last month.

But yesterday also saw the issuance of new labor productivity data, and it contained new evidence that manufacturing has changed from a leader in U.S. labor productivity growth to a serious laggard. And that’s entirely consistent with the dismal performance being turned in by manufacturing wages lately.

The latest labor productivity figures (the narrower of the two measures of efficiency tracked by the Labor Department, but the one for which results are published on by far the timeliest basis) provide the preliminary results for the second quarter of this year. They’re the first indication of serious troubles for manufacturing. Quarter-to-quarter, industry’s labor productivity improved by 0.9 percent on an annualized basis, and that was its best such performance since the whopping 4.4 percent jump registered for the fourth quarter of last year (and which, for reasons to be discussed below, seems to have been a major outlier).

But labor productivity for all non-farm businesses (the Labor Department’s U.S. economy’s productivity universe) rose by 2.9 percent sequentially at an annual rate – its best such performance since the first quarter of 2015 (3.1 percent).

Manufacturing’s laggard status showed up in the first quarter revisions, too. Here it’s important to observe that, as of today, these numbers have been revised twice since the initial statistics were released in early May. As is normally the case, the following month, new estimates for that time period came out. But yesterday, as it not normally the case, the Labor Department’s first report on the second quarter includes sweeping revisions of the Labor Department data that go back all the way to 1947! And these include yet another set of figures for the first quarter.

So here’s how the estimates of sequential annualized labor productivity growth have changed since May:

                                             Non-farm business   Manufacturing (both annualized)

1Q 2018 preliminary                    +0.7 percent                     +0.5 percent

1Q 2018 1^st revision                     +0.4 percent                      -1.2 percent

1Q 2018 final (for now!)             +0.3 percent                       -1.0 percent

2Q 2018 preliminary                   +2.9 percent                       +0.9 percent

Any way you cut it, manufacturing’s recent labor productivity growth has trailed that of all non-farm businesses. And since manufacturing is a part of that non-farm business category, non-manufacturing non-farm businesses exceeded manufacturing’s labor productivity growth by an even wider margin.

Now let’s perform the same exercise looking at labor productivity growth for the last three economic recoveries (including the current, ongoing expansion). As known by RealityChek regulars, comparing similar stages of the economic cycle is the best way to get the most reliable long-term insights.

                                                                      Non-farm business     Manufacturing

1990s expansion (2Q 1991-1Q 2001) last pre-big revision estimate:

                                                                        +23.25 percent           +45.86 percent

1990s expansion latest:                                  +23.77 percent                    same

bubble expansion (4Q 2001-4Q 2007) last pre-big revision estimate:

                                                                      +16.03 percent            +30.23 percent

bubble expansion latest:                                +16.60 percent                     same

current expansion: (2Q 2009 to present): (as of preliminary 1^st quarter estimate)

                                                                         +9.70 percent            +9.69 percent

as of first 1^st quarter revision:                          +9.62 percent            +8.28 percent

latest (as of big revision 1^st quarter estimate)  +9.43 percent            +8.36 percent

2d quarter preliminary estimate:                    +10.21 percent            +8.61 percent

The bottom line here: The latest big revision confirms earlier findings that during the current recovery, manufacturing has lost its labor productivity lead, mainly because its labor productivity growth has slowed down compared with that of previous recoveries much more dramatically than the labor productivity growth in non-farm businesses.

As of the first quarter, this relative manufacturing slowdown was not quite as significant as previously thought. But the preliminary second quarter figures show that it’s regained major “momentum.”

Measuring productivity growth if of course still one of the most controversial exercises in economics. But it’s also still the case that the profession hasn’t come up with an alternative that’s attracted widespread support. So the safest assumptions continue to be that American manufacturing’s productivity slump is dragging on, and that until it’s reversed, American manufacturing wages will keep disappointing.

(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.