Q2 productivity increased at a 2.5%; annual rate, almost one point higher than expected. But last quarter’s productivity was revised downward by 1.3%. to minus 4.5%, the lowest in 33 years. Could it have been all those businesses that were open but not selling anything because of the terrible weather last winter? The worrisome part of the release is that the rebound in Q2 was puny: 2.5% is just 3 tenths above the post-World War II average. In fact productivity growth over the last 3 years has fallen to 0.8%, the lowest since the early 1990s. That, more than anything explains the stagnant wages and real income of workers. The reasons for this decline are not clear: it could be due to greater regulation, more part-time workers with lower productivity, the lack of skills that new workers bring to the workforce, or broader factors such as the lack of technological breakthroughs that increase output. In the past lulls in productivity have been followed by rebounds.
If jobs continue to grow this could portend the onset of wage inflation. Something that we need to watch very closely.
(Source: WisdomTree, Jeremy J. Siegel)
