 | Nonfarm Productivity Declined at a 1.8% Annual Rate in Q4 |
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| Posted Under: Data Watch • Productivity |
Implications: Please feel free to take all the government's productivity numbers with a huge grain of salt. For reasons we explain below, we don't think the official productivity figures are capturing the dynamism of the US economy. According to the official data, nonfarm productivity declined at a 1.8% annual rate in Q4. Output continued to increase at a healthy clip, but hours climbed at the quickest pace since 1998, so output per hour declined. Productivity is unchanged from a year ago, but we suspect the government is underestimating output in the increasingly important service sector, which means growth and productivity are higher than the official data show. (For example, do the data fully capture the value of smartphone apps, the tablet, the cloud,...etc.?) We believe the figures from the government miss the value of these improvements, which means our standard of living is improving faster than the official reports show. Note that on the manufacturing side, where it's easier to measure output per hour, productivity is up 2.8% in the past year. From 1973 through 1995, overall productivity growth averaged 1.5% per year. In spite of the problems with measurement, we anticipate faster productivity growth over the next few years as new technology increases output in all areas of the economy. The declining unemployment rate, decline in labor force participation, and faster growth in wages should create more pressure for efficiency gains, while the technological revolution continues to provide the inventions that make those gains possible. Overall, for 2015-16, we look for faster productivity growth than in the past two years.
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