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The importance of productivity growth has been described in blunt terms by:
* Federal Reserve Chair Janet Yellen, who stated that “the most important factor determining living standards is productivity growth.”
* The Congressional Budget Office (CBO), which reported that “a small change in the growth of productivity” over an extended period can inflict more harm than recessions, because lower productivity reduces economic “output by an ever-increasing amount.”
* U.S. Bureau of Labor Statistics economist Betty W. Su, who wrote that “high productivity growth” affords people with a “higher standard of living and quality of life.”
Productivity growth is especially vital for people with low incomes, because low-wage workers in highly productive nations have much better standards of living than their peers in less productive ones. For example, McDonald’s workers in the U.S. can buy about 2.4 Big Macs with their earnings from an hour of work, but this drops to:
2.2 Big Macs in Western Europe,
0.8 Big Macs in Eastern Europe, and
0.4 Big Macs in Latin America.
This amounts to a stunning 500 percent premium in purchasing power in the U.S. versus Latin America. As detailed by Princeton economics professor Orley C. Ashenfelter, McDonalds’ workers across the world perform the same jobs with the same levels of productivity, but because they live in nations with different levels of productivity, these workers have vastly different standards of living.
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That says that productivity growth has dropped...not that productivity has dropped.Productivity growth below the average of the prior six decades...
Productivity Growth of U.S. Economy Collapses to Record Low
May 18, 2016 | U.S. productivity growth, the greatest determinant of living standards, has been lower for the past five years than any five-year period on record. New data from the U.S. Bureau of Labor Statistics shows that productivity growth has averaged 0.4 percent per year over the past half-decade. This is 82 percent below the average of the prior six decades, which is as far back as this data extends.
The importance of productivity growth has been described in blunt terms by:
* Federal Reserve Chair Janet Yellen, who stated that “the most important factor determining living standards is productivity growth.”
* The Congressional Budget Office (CBO), which reported that “a small change in the growth of productivity” over an extended period can inflict more harm than recessions, because lower productivity reduces economic “output by an ever-increasing amount.”
* U.S. Bureau of Labor Statistics economist Betty W. Su, who wrote that “high productivity growth” affords people with a “higher standard of living and quality of life.”
Productivity growth is especially vital for people with low incomes, because low-wage workers in highly productive nations have much better standards of living than their peers in less productive ones. For example, McDonald’s workers in the U.S. can buy about 2.4 Big Macs with their earnings from an hour of work, but this drops to:
2.2 Big Macs in Western Europe,
0.8 Big Macs in Eastern Europe, and
0.4 Big Macs in Latin America.
This amounts to a stunning 500 percent premium in purchasing power in the U.S. versus Latin America. As detailed by Princeton economics professor Orley C. Ashenfelter, McDonalds’ workers across the world perform the same jobs with the same levels of productivity, but because they live in nations with different levels of productivity, these workers have vastly different standards of living.
MORE
The Labor Department said on Tuesday that productivity, which measures hourly output per worker, dropped at a 0.5 percent annual rate in the April-June period, extending the longest decline since 1979. Productivity fell at an unrevised 0.6 percent rate in the first quarter. In the second quarter, productivity decreased at a 0.4 percent rate compared to the same period last year, the fastest year-on-year pace of decline in three years.
Revisions to data going back to 2013 also confirmed the softening productivity trend, but strong employment gains have helped to raise output overall with U.S. payrolls growing by more than 500,000 jobs in June and July. "The reason the economy has still been able to expand is because of labor input. Firms are hiring people at a reasonably healthy rate," said Joseph LaVorgna, chief economist at Deutsche Bank Securities in New York. "However, we do not believe this can last, because strong hiring in the face of weak productivity necessarily implies a further deterioration in corporate profit margins."
Jacob Bailey conducts assembly work on an SUV chassis at the General Motors Assembly Plant in Arlington, Texas
After rising rapidly in the 1990s as computers made workers more efficient, productivity has fallen as companies have been reluctant to invest in new equipment in the past 18 months given the outlook for sluggish economic growth globally. In the long run higher incomes and rising living standards depend on rising productivity though. The U.S. economy expanded at an annual pace of only 1.0 percent during the first six months of this year, roughly half the average of the past seven years. U.S. stock prices were little changed at Tuesday's close, near record highs set recently, as investors shrugged off the productivity data, while U.S. Treasury yields edged lower as lower productivity suggests inflation may remain subdued.
SLUGGISH CORPORATE PROFITS
Corporate profits declined 5.3 percent in 2015 partly due to the lagging impact of a strong U.S. dollar and lower oil prices, before seeing an 8.1 percent rebound in the first quarter 2016 according to government data. Corporate profits data for the second quarter will be published later this month. The Commerce Department reported last month that gross domestic product rose at a 1.2 percent annual rate in the second quarter following a 0.8 percent rise in the first quarter. The estimate for second-quarter GDP growth could be revised slightly up after a separate report from the Commerce Department on Tuesday showed wholesale inventories increased 0.3 percent in June. The government had previously reported wholesale inventories as being unchanged in June.
DOUBTS ABOUT DATA
