Implications: Productivity growth in the second quarter was revised slightly lower to a still healthy 2.3% annualized pace. Despite the slightly weaker Q2 number, productivity has been increasing, up 1.1% from a year ago compared to only 0.2% growth in the prior year. Still, in the past three years, productivity is up at only a 0.8% annual rate, noticeably slower than the average gain of 2.3% since 1996. However, we do not think the productivity revolution has come to an end. More importantly, we think actual productivity growth is much stronger than what the government reports. Think of developments in the service sector, the value of which is hard to measure. Drivers used to buy devices like Garmins to help them navigate; now they download free apps that are more accurate and provide optimal routes through real-time traffic patterns. Travelers used to guess, hit-or-miss, where to go for a meal. Now they can use free services to tell them what restaurants are close and provide reviews. 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. Sectors of the economy that are easier to measure show more rapid productivity growth. On the manufacturing side, productivity rose at a 3.3% annual rate in Q2, the best reading in a year, and is up a respectable 2.1% from a year ago. Manufacturers, due to new technologies, are still able to increase output faster than hours. Overall, for the rest of the year and into 2015-16, we look for faster productivity growth than in the past two years.
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Posted on Thursday, September 4, 2014 @ 9:47 AM
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