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.
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.