US nonfarm productivity declined 0.5% this quarter, down three consecutive quarters. This is the longest negative stretch since 1979.
Manufacturing productivity declined 0.2%.
The BLS calculates labor productivity, or output per hour, by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.
The Bloomberg Econoday economists’ consensus estimate was for a productivity gain of 5%. Instead, productivity declined 0.5%.
Highlights
Output picked up in the second quarter but not quite as much as hours worked or compensation. Productivity fell 0.5 percent in the quarter for the third decline in a row. This is the longest negative streak in the history of this report which goes back to just after WWII.
Unit labor costs rose 2.0 percent but, in a plus, were revised sharply lower in the first quarter which now shows a rare decline at minus 0.2 percent. But most readings in this report are not positive including the year-on-year rate for productivity which is down 0.4 percent for the first decline since second-quarter 2013. In an unfavorable contrast, year-on-year unit labor costs are up 2.1 percent.
Lack of business investment is unfortunately a central negative of this cycle and it results in weakening productivity for the nation. Americans are working more hours but production isn’t keeping up.
Recent History
First estimate for second-quarter non-farm productivity is expected to improve from a very weak first quarter with the consensus pointing at a plus 0.5 percent annualized rate and benefitting from a slightly higher but still weak rate of output. An improvement in output would hold down unit labor costs which are forecast to rise 1.8 percent, far lower than the 4.5 percent and 5.4 percent surges of the prior two quarters.
Longest Losing Streak Since 1979
The Wall Street Journal reports U.S. Productivity Fell for Third Straight Quarter.
Nonfarm business productivity, measured as the output of goods and services produced by American workers per hour worked, decreased at a 0.5% seasonally adjusted annual rate in the second quarter as hours increased faster than output, the Labor Department said Tuesday.
It was the third consecutive quarter of falling productivity, the longest streak since 1979. Productivity in the second quarter was down 0.4% from a year earlier, the first annual decline in three years and just the sixth year-over-year drop recorded since 1982.
Productivity growth started to slow before the 2007-2009 recession and has all but stalled in recent years.
Yellen Cautiously Optimistic on Productivity
Federal Reserve Chairwoman Janet Yellen in June described the outlook for productivity growth as a “key uncertainty for the U.S. economy” that will help determine the future trend for living standards.
“Understanding whether, and by how much, productivity growth will pick up is a crucial part of the economic outlook,” Ms. Yellen said. “But this is a very difficult question, and economists are divided. Some are relatively optimistic, pointing to the continuing pace of innovations that promise revolutionary technologies, from genetically tailored medical therapies to self-driving cars. Others believe that the low-hanging fruit of innovation largely has been picked and that there is simply less scope for further gains.”
She described herself as “cautiously optimistic” but said it “would be helpful to adopt public policies designed to boost productivity,” such as promoting investment.
BLS Report on Productivity and Costs
Let’s now take a look at the BLS Report on Productivity and Costs.
BLS Notes
- Nonfarm business sector labor productivity decreased at a 0.5-percent annual rate during the second quarter of 2016. Output increased 1.2 percent and
hours worked increased 1.8 percent. - From the second quarter of 2015 to the second quarter of 2016, productivity decreased 0.4 percent, the first four-quarter decline in the series since a 0.6-percent decrease in the second quarter of 2013.
- Unit labor costs in the nonfarm business sector increased 2.0 percent in the second quarter of 2016, reflecting a 1.5-percent increase in hourly compensation and a 0.5-percent decline in productivity. Unit labor costs increased 2.1 percent over the last four quarters.
- Manufacturing sector labor productivity decreased 0.2 percent in the second quarter of 2016, as output and hours worked decreased 0.8 percent and 0.7 percent, respectively.
- The concepts, sources, and methods used for the manufacturing output series differ from those used in the business and nonfarm business output series; these output measures are not directly comparable.
Economic Debate
Economists debate why productivity is so weak, but I propose cheap money.
By holding rates so low, the Fed induced a proliferation of stores that have to be stocked, and manned.
Overall sales may be up, but it is spread around on a number of stores rising faster than necessary.
Unit labor costs are up thanks to new minimum wage laws. Higher minimum wages will eventually slow store expansion. Yellen will not like the result.
Mike “Mish” Shedlock
Hmmm.
Government revenue is up. Productivity is down.
Do the math.
We continue to race in the direction of the brick wall.
The system INHERENTLY creates a greater flow of costs than it simultaneously creates in individual income. Do the calculus.
I define productivity as someone working twice as hard for half as much pay. This seems like it might apply mostly to the middle class. If productivity is declining what does that mean for stocks and the stock market; it goes up as the stocks climb a wall or worry?
job creation being virtually all in the public sector or dependent on gubmint contracts,handouts,yada yada,what else could you possibly expect! which certainly means more taxes,more borrowing more printing to achieve less and less
Yellen: “it would be helpful to adopt public policies designed to boost productivity,” such as promoting investment.
Lower taxes and less regulations would boost productivity, but with the present government policies that is not going to happen.
Like
The shift from 40hr week to an O’care 30hr week is inefficient but profitable.
O’care increased the annual cost of labor by $6,000. Not productive.
WAIT. Clinton vs Trump is a choice between investing in Mexico or USA.
Fossil fuels are more productive than solar.
Irish profit has triple the value of US profit. Go there.
What man in his right mind is going to risk his capital to innovate in an economy based on puffery and lies?
Don’t you think that a man with the wherewithal to invest millions in capital or R&D would think twice after reading the government manufactured stats and contrasting that with reality economics that we see in our everyday lives?
Maybe someone with inherited money would take the leap. But a man who actually had to work for his money would move with extreme caution.
Without innovation economies fade away.
Dr. Robert Gordon, and economist from U. Chicago, has a nice, new 800 page book out which explains the current phenomena of extremely low productivity growth.
Basics: the industrial revolution is over. It was a one-time, ever in human history, explosion of productivity growth and wealth creation. It ran from about 1870 – 1970. Since 1970, the productivity growth has been just momo from that era, and it is running out.
It is not CB policy, nor is there anything the government, business, or entrepreneurs can do about it. The industrial revolution was a momentary, magnificent moment in human history and many of us were fortunate to see it. But now we are going into a new normal that will require innovations in human relations more so than products.
The book is dense, fact-based, but worth a thoughtful read.
Thanks for that. I might place that lengthy Gordon tome next to my copy of Von Mises’ “Human Action,” for a comparison of relevancy at some future date.
For now, I will not hold harmless the Central Bank’s part in continuously destroying the value of sovereign currencies, and therefor the value of labor and productivity.
As for the Industrial Revolution, it ran it’s course and was replaced by the IT Revolution. Darwin had a theory ’bout these things, but likely didn’t understand the power structure’s need to maintain the Buggy Whip manufacturing sector as a means of maintaining the illusion of control.
Seems the preservation of endangered species such as Keynesianism, has a tendency to upset the progress of Natural Selection.
“But now we are going into a new normal that will require innovations in human relations more so than products.”
Does Gordon ‘human relations’ as in convincing the plebes to work longer hours at slave wage service jobs and be happy with their lot in life?
Good luck with that in the land of plenty.
Authors who make their living writing books on sociological or economal theory will eventually dry up with the manufacturing jobs. Nobody with have $30 of discretionary income left over at the end of the month to afford such babble.
Well, he doesn’t make any specific recommendations. The issue is a lack of productivity kills wage growth. We all grew up in a world where you could get fairly regular pay raises, switch jobs and get big pay raises, and use that confidence to take on long term debt to buy houses, fancy cars etc…
Without that productivity growth, all of that goes away. But worse, it creates a situation where the vast majority can only get ahead by reducing someone else’s income. Which can create levels of extreme political volatility. Which I believe we are starting to see.
So his real view is how to we modify social relationships in a way that keeps that political volatility from making the economy even worse? How do you make the plebes happy enough that they don’t turn America into Venezuela? But, again, he doesn’t make any recommendations. Just brings the issue up.
As long as the Fed maintains money/credit productivity rates, the game will continue.
No “Brick Walls” necessary,,,,only a slow and incremental transition from a Market based economy to a State run system. This thing dies with a whimper, many decades from now, not a big bang.
Nope no one in the right mind would consider starting a business in this environment. Yellen surely knows what is happening. It is the FED’s fault for enabling this mess. Its either incompetence or by plan. You decide.
Agendas usually involve planning, so,,,,,,,
Average GDP growth was at least twice as strong before 1913 as it has been since. In 1913 we got the Fed and the income tax, both “passed” under very suspicious circumstances. Woodrow Wilson later said that signing the Fed creation bill was the worst mistake of his Presidency, and had handed the country over to Wall Street…
Hello Mish,
The numbers of Social Media popularity of Hillary v. Trump speak loudly of how the Mainsteam Media and Polls are lying to the American People. Here is just one of the numbers:
“Trump Live Stream Post — 21 hours ago: 135,000 likes, 18,167 shares, 1.5 million views Clinton Live Stream Post — 25 hours ago: 11,000 likes, 0 shares, 321,000 views”
Not only Trump had almost 5 times more viewer’s watching him speak,
10 times more people, liked what Trump said (adjusted for less number of people watching, People, twice as many people liked what Trump said versus Clinton,
Lastly over 18,000 shared Trump speech, Where NO ONE, not even one person found Hillary’s speech worth sharing! At the time of this email, over 10 times more people shared Trump’s speech compared to Clinton’s speech.
I believe you can do a nice write up on this. Here is the link for the source of the above date: http://www.youarebeingfooled.com/2016/08/trump-vs-clinton-analysis-social-media-august-4-2016/
Your’s in freedom and justice,
Peymon Mottahedeh, President
Freedom Law School
http://www.LiveFreeNow.org (813)444-4800
Could you comment on why productivity is declining please. Is it due to lack of investment by companies because they are using profits to buy back shares, and more money goes to employee health care benefits insurance costs, etc. It seems like a conundrum that robots are progressing quickly as you have explained, and there are biomedical and other advances, but productivity is down.
Is increasing government regulations a contributor to the decline in productivity?
From reading Mauldin, the simple explanation of GDP growth for us laymen is that growth is the increase in the working population plus the increase in procuctivity. Birthrate has slowed, so there is more of a burden long term on productivity, so the productivity report is very disturbing to me because of the implications on growth.
Thanks for all the insights you give us.
Could you comment on why productivity is declining please. Is it due to lack of investment by companies because they are using profits to buy back shares, and more money goes to employee health care benefits insurance costs, etc. It seems like a conundrum that robots are progressing quickly as you have explained, and there are biomedical and other advances, but productivity is down. Is increasing government regulations a contributor to the decline in productivity? From reading Mauldin, the simple explanation of GDP growth for us laymen is that growth is the increase in the working population plus the increase in procuctivity. Birthrate has slowed, so there is more of a burden long term on productivity, so the productivity report is very disturbing to me because of the implications on growth. Thanks for all the insights you give us. Bob HenryTucson, AZ
From: MishTalk To: henrybobd@yahoo.com Sent: Tuesday, August 9, 2016 9:22 AM Subject: [New post] Productivity Declines 0.5%, Down 3rd Consecutive Quarter, Longest Losing Streak Since 1979 #yiv5906043554 a:hover {color:red;}#yiv5906043554 a {text-decoration:none;color:#0088cc;}#yiv5906043554 a.yiv5906043554primaryactionlink:link, #yiv5906043554 a.yiv5906043554primaryactionlink:visited {background-color:#2585B2;color:#fff;}#yiv5906043554 a.yiv5906043554primaryactionlink:hover, #yiv5906043554 a.yiv5906043554primaryactionlink:active {background-color:#11729E;color:#fff;}#yiv5906043554 WordPress.com | mishgea posted: “US nonfarm productivity declined 0.5% this quarter, down three consecutive quarters. This is the longest negative stretch since 1979.Manufacturing productivity declined 0.2%.The BLS calculates labor productivity, or output per hour, by dividing an” | |
So I understand all of you are idiots…including the dolts at Zero Hedge and Mish too…but riddle me this “smartest dorks in the room”
If productivity is getting hammered then who in their right mind is buying Treasuries?
According to Zero Hedge and Seeking ALF and here “everybody…AND YOU SHOULD BE TOO!!!”
Anyhow a huge rally in the 30 year “on the worst productivity report since 1979” because, like….nothing has changed since 1979….
Move along
Move along…
Beware of this report. Others as well, but particularly this one. “Productivity”, as defined by BLS, is progressive Newspeak at it’s most crass. Pick a word that has certain strong connotations to most laymen, but define it in much narrower, at best tangentially related terms.
“Output” per hour worked is, in anything resembling the short to medium term, more dependent on how “output” is valued, than on what most people would normally think of as productivity. Pump up measured real GDP, by debt and/or dubious GDP deflators, and “productivity” magically rises. Hip, hip hooray for “economic policy.” When it starts getting hard to force feed any more debt into the system, “productivity” drops in lock step with slowing CPI inflation. But then the problem is, of course, that “we” need more/cheaper debt, to fund “investment.” And once the debt pump is running full steam ahead again, “productivity” magically rises……..
Harder to fudge measures of consumption, hence “output” have been stagnant for a long time. Oil usage, or even broader energy usage, is pretty much flat. Quality corrected number of square foot of paved roads, have likely declined for decades. Ditto for number of hours of a doctor’s time affordable by a median worker’s monthly pay. And I wouldn’t’t be surprised if the same is true for total water consumed, total hours of voluntary leisure consumed, and a whole host of other metrics that cannot easily be manipulated via simple printing to make the Junta look good. Yet hours worked are up. Meaning, “productivity” is way down.
I’m swamped at work, 50 hour weeks on end with no end in sight for the next 12 months. The more we try to do with fewer people in a short schedule means more mistakes are being made. Work has to be redone. Then there is the loss of productivity due to multitasking.
Businesses are painted into a corner: Either pay for more labor (or better quality) to do the job on time and with fewer mistakes; or pay fewer people who take longer because they make more mistakes. So businesses take a chance behind door number two.
Maybe the fact that corporate investment has been negative for 3 quarters has reduced productivity has had some impact???