Labor productivity has taken a dive, which may also explain why salaries have stay stagnant and not kept up with inflation. Greater productivity creates greater profits and better salaries.
In the first half of the year, a lot more Americans were working a lot more hours. In the first half of the year, U.S. economic output declined.
That means productivity plunged, creating one of the weirdest economic phenomena we’re seeing in a year full of them.
Driving the news: The Labor Department said today that labor productivity fell at a 4.6% annual rate in Q2, which followed a 7.7% drop in Q1.
Over the last year, productivity is down 2.5%, which is the lowest it has ever been in data that goes back to 1948!
Why it matters: The pathway to higher incomes, and a richer society, runs through generating more economic output for every hour of work put in. It is an alarming sign that the U.S. has been heading in the other direction so far this year.
It’s likely worsening the inflation problem, in the sense that prices wouldn’t be soaring as much if the supply of goods and services were rising as quickly as you might expect, given all that hiring.
From quarter to quarter, the productivity numbers can be volatile to the point of meaninglessness. They are a residual of two different data sets, with economic output (as measured in GDP) divided by hours worked (compiled as part of the employment data).
Axios Macro By Neil Irwin and Courtenay Brown · Aug 09, 2022