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Productivity: Don't Watch the Latest Number

Posted by: Michael Mandel on August 11

The second quarter productivity numbers came out today, and they were a mixed bag. On the good side, nonfarm business productivity looked like it jumped at a 6.4% annual rate in the second quarter. Manufacturing productivity, according to the release, went up at a 5.3% annual rate.

But please don’t be overly impressed. Quarterly productivity numbers are always subject to big revisions. They can even change sign from positive to negative.

Instead, it’s the long-term productivity trend which is much more important for the economy—and in that regard, today’s report is more mixed.

For one, today’s release shows a significant downward revision in reported productivity growth since the recession started. Before the revisions, the nonfarm productivity growth rate from the fourth quarter of 2007 to the first quarter of 2009 had been 2.1%, a good number for a recession. Now productivity growth for that five-quarter stretch is 0.8%. Including 2009II, the productivity growth rate in the recession is 1.7%.

But even 18 months may not be long enough to give us a good baseline on productivity growth. Generally, economists look at productivity trends over five and ten year periods—enough time to smooth out the random wiggles. Here are the charts of the five year and the ten eyar growth rates of productivity.


Five-year productivity growth has plummeted, but ten-year productivity growth is still holding up strong. Does this fight my “Lost Decade” hypothesis? Well, it’s hard to say. We’re getting decent 10-year productivity growth because we had both weak output growth since 1999 (the numerator) and negative hours growth (the denominator). It’s certainly not the way you’d like to see your productivity gains.

Here’s a final chart for you—hours in the nonfarm business sector. We are now back to 1996 levels.


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Reader Comments


August 11, 2009 12:05 PM

The "hours" graph nicely shows the two humps of dotcom and the housing bubble.

Do you have productivity stats for subsectors? One thing that happened between 2000 and 2006 was rampant offshoring of nonmanual labor (in addition to the continued slower bleed of blue collar), but the big wave seems to have run its course (and disillusionment seems to have set in but has not been acknowledged, and perhaps never will). In part due to the "intangible" nature of much of that work, often delivered through telecommunications, I suspect "imports" were not properly accounted for, leading to a fake productivity increase.

Besides that, building overpriced houses with how should I say this, using improperly accounted for labor inputs, and finding new efficiencies in processing sales and loan documents, may also have contributed.


August 11, 2009 02:01 PM

This is definitely the only time that hours have been negative over 13 years, since the great depression.

This would have been unheard of even in the 1970s.

On thing just around the corner that will boost corporate productivity by a lot is Telepresence. Large corporations will save hundreds of millions a year, at the expense of airline and hotel industries.


August 11, 2009 11:27 PM

Am I to understand that the respectable Bush era unemployment rates were accompanied by lower hours worked? I don't think that the working age population was shrinking. This would give credence to reports that suggest a large number of workers resorted to part-time in spite of full-time aspirations. I suspected at that time that the explosion in government employment served somewhat as a cover for the drop in viable private sector employment (apologies for showing my true colors).

Kartik, I hate to tell you but a large amount of corporate travel has long been circumvented by technology of the nature you highlight. It only takes a few such conference rooms. Rather than enabling Toffler's electronic cottage and other extraordinarily efficient means of operating, it seems to have served essentially to prove that the work did not need to be done domestically -- not a bad thing in your global economy view, but I personally would really like to discover how to revitalize the U.S. economy.

Andy Harless

August 12, 2009 12:45 PM

Both the 5yr and 10yr averages seem conservative to me in that they happen to overweight recessions and peaks while underweighting post-recession growth spurts. 5 yrs takes us from just after the last post-recession productivity spurt up through (hopefully) the bottom of this recession. 10 yrs includes 2 recessions and the peak of the earlier cycle (normally a time of slowing productivity growth) and misses almost all of the previous upswing.

One might note, however, that rapid productivity growth is not necessarily good news when we're in a potentially deflationary environment.

Tom E.

August 15, 2009 09:44 AM

Increased productivity might actually reduce our standard of living if the increased profits are not shared with employees and/or invested in the US (creating new jobs).

With the above scenario, you have less people employed, making less money. The only contribution to the US economy would be if the price of the goods or service were decreased.

On the other hand, companies could keep prices the same, pocket the extra profit and invest it overseas. This would reduce the US standard of living.

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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