Nonfarm Productivity Increased at a 1.3% Annual Rate in the Second Quarter

Implications: After declining for the past two quarters, nonfarm productivity grew at a 1.3% annual rate in Q2. Hours continued to increase at a healthy clip and output climbed even faster so output per hour increased. Productivity is only up 0.3% from a year ago, but we think government statistics underestimate actual productivity growth. There are many examples, in every area of the economy, but the service sector is particularly hard to measure. (For example, do the data fully capture the value of new technologies like smartphone apps, the tablet, the cloud,...etc.?) Traveling for work? You can book your flight, car, hotel, Uber, and learn from Siri or Google when to leave home so as not to miss your flight, while getting turn by turn instructions, all from a device that fits in your pocket, or on your wrist! The benefits to consumers and businesses have been huge, but the figures from the government miss the value of these improvements, because most of these amazing productivity boosting technologies are free, and anything free, no matter how much it improves everyday life, isn't included in output, which means it's not included in productivity either. This means our standard of living is improving faster than the official reports show. Still even on the manufacturing side, where it's easier to measure output per hour, productivity is up only 1.1% in the past year. This is consistent with overall productivity growth of 1.5% on average per year from 1973 through 1995. However it's slower than the 2.1% average per year since 1995. 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 five years.

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Posted on Tuesday, August 11, 2015 @ 9:49 AM

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