Hooray! Americans and the world just got a new batch of productivity data. You know – those statistics that everyone knowing anything about economics calls a key to sustainable national prosperity, but that are usually ignored when they’re issued even when impeachments and State of the Union speeches and presidential primaries aren’t dominating the headlines.
But as often been the case recently, the news on the whole discouraging. Non-farm businesses (the national economic universe as defined by the Labor Department, which tracks productivity) registered a better performance according to these preliminary figures for the fourth quarter of last year than for the third quarter. Yet the rate of year-on-year improvement slowed. Manufacturing’s figures, moreover, worsened over both time frames.
No better is the big picture revealed by these results: The U.S. economy remains smack in the middle of a major productivity slowdown, which augurs poorly for its ability to keep growing in a healthy (as opposed to a bubble-ized) way.
This productivity report measures labor productivity – the amount of output any sector of the economy or the entire economy can generate for each hour worked by each of its employees. It’s a narrower gauge of business efficiency than multi-factor productivity – which, as suggested by its name, records production as a function of a wide variety of inputs. But the labor number is reported on a timelier basis, and therefore tends to attract the most attention – when it attracts any attention at all!
According to the new release, labor productivity during the last three months of 2019 advanced by 1.40 percent at an annual rate. The final third quarter figure (which went un-revised)? A 0.20 percent annualized drop.
Moreover, on an annual basis, non-farm business labor productivity rose between 2018 and 2019 by 1.79 percent. That’s considerably faster than the 1.01 percent advance during the previous year.
Unfortunately, that’s where the good news stops. Labor productivity in domestic manufacturing – once the economy’s leader on this score (see the table below) – dropped sequentially for the third straight quarter. And this 1.20 percent annualized decrease was worse than the third quarter’s 0.26 percent annualized decline – which itself was revised down from a 0.10 percent increase.
Even worse is the latest year-on-year comparison. Between 2017 and 2018, manufacturing’s labor productivity rose by 0.60 percent – not terrific, but at least an improvement. Last year, it tumbled by 0.68 percent. That’s its worst such performance since 2014-2015’s 1.45 percent dive.
But if you really want to be bummed, check out the trends over the last three economic recoveries (including the current expansion, whose length, at least, keeps setting records). The ever weaker growth rates are troubling enough. Worse still is the slowdown’s acceleration (even in non-farm businesses if you take into account the length of the ongoing recovery.
Non-farm business Manufacturing
1990s expansion (2Q 91-1Q 01): +23.74 percent +45.86 percent
bubble expansion (4Q 01-4Q 07): +16.59 percent +30.23 percent
current expansion (2Q 09 thru prelim 4Q 19): +13.19 percent +5.98 percent
President Trump’s State of the Union address Tuesday night boasted about numerous economic achievement during his administration, and as noted in my analysis of yesterday’s U.S. trade figures, on some scores, he’s entitled to do so. But the speech never mentioned productivity, and given today’s new numbers, it’s easy to understand why.