That all important measure: productivity

U.S. productivity for the first quarter was up 3.6%.  This compares to the previous quarter’s revised gain of 6.3%.

Analysis: I have written at length on the blog about the difference between economic growth as measured by gross domestic product and what I refer to as real economic growth.  One of the measures of this latter kind of economic expansion is productivity so I prefer productivity to gross domestic product as a measure of how the economy is operating.  That said, I have also written about the fact that the productivity numbers generated in the recession were unsustainable.  This is because businesses across the country fired their workers en masse and asked their remaining employees to pick up any slack created by vacated co-workers.  Long-term this results in an exhausted, over-worked and stressed work force that eventually leads to lower productivity unless businesses hire new employees.  I would characterize the fourth quarter productivity gain of 6.3% – and all gains in 2009 – in this category.  Which brings us to the first quarter gain of 3.6%.

While the first quarter productivity number is down, it is a number more consistent with normal economic growth.  In other words, the decline is not something that I feel should create any stress in investors.  Actually, I see it as a positive sign that the economy is becoming more regular and less volatile.

Lastly, notice that the GDP tracks the magnitude of productivity, if not actually perfectly correlated.  Fourth quarter GDP was up big, big, big and so was productivity.  First quarter GDP was up more modestly and so was productivity.  Tracking both of these figures gives you pretty good insight into the state of the economy.  Right now, it is becoming more normal and that is a good thing.

Importance grade: 7; productivity is one of the most important measures of economic health.  In my opinion it tracks well real economic growth sans extraordinary circumstances.  That the first quarter number is 3.6% makes me feel very comfortable.

Jason