Productivity Slips—Good News for the Jobless
Americans’ productivity—that’s the value of their output per hour of work—fell in the first quarter. For people seeking work, that’s a good thing. It means companies have gone as far as they can in squeezing more work out of their existing workforce. To meet rising demand, they’ll have no choice but to hire.
I spoke about the Department of Labor’s report today with Joseph LaVorgna, the chief U.S. economist at Deutsche Bank Securities in New York. He was dead-on in his estimate that nonfarm business productivity would decline at an annual rate of 0.5 percent in the first quarter, vs. a 1.2 percent rate of increase in the last quarter of 2011.
Here’s what he said:
• “We had tremendous productivity growth in the latest cycle,” up until a year ago, “but it’s the bad kind of productivity. It simply reflects the fact that companies were super cautious and afraid to hire.” Now, “companies are stretching the limits to how much incremental output they can get from their existing workforce.”
• The good kind of productivity is new technologies that not only make workers more efficient, but induce companies to invest more to exploit the technology and increase sales. That kind of productivity can actually increase employment. “You want a new technology that becomes so diffuse that it makes people more productive while also creating demand for goods and services. People find new uses for the new technology that put people to work.”
• There’s one number in the government’s report today that seems likely to be revised—the 5.9 percent rate of increase in manufacturing productivity. Employment growth in manufacturing has been too strong for productivity growth to be that high, LaVorgna says. And if that number gets revised downward, “overall productivity should even be lower.”
• Slow productivity growth shouldn’t be confused with low productivity. In fact, productivity is high. “We’ll have a very lean workfore that can produce a lot with a little. From now on, companies need to hire more people.”
On Friday the Labor Department will report the April change in payrolls and the unemployment rate. The median estimate of economists surveyed by Bloomberg News is for the unemployment rate to stay at 8.2 percent and payrolls to grow 160,000. LaVorgna says the government may revise previous months’ job growth upward. It has done so in 20 of the past 22 months, he says.