Productivity results

Good morning!
The Department of Labor released fourth quarter productivity figures this morning.  Productivity in the U.S. rose by 6.2%.  For the whole of 2009 the DoL reported that productivity rose by 5.1%.

Analysis: Increases in productivity are my favorite economic statistic.  I consider productivity to provide insight into the ways in which people are learning to do things more efficiently.  This is the heart of economic growth and the bedrock that underlies the economy.  Productivity is measured as output per hours worked.  Output here means the dollar value of good and services a person creates.  Given that the economy as measured by GDP grew at 5.7% in the fourth quarter, and the economy is still shedding jobs, the output per hour worked had to go up – in this case by 6.2%.  So this result is not that surprising.

Yet, as I said last quarter, the productivity number is not repeatable in the long-term (3-5 years).  The reason is that employees that do have jobs are being worked to the bone.  Not only that, but wages are not growing, so at some point your average employee is just going to get plain tired and start to feel unappreciated.  Something has to give and that something is that businesses need to start hiring folks.  This will reduce the burden of output per employee, lower productivity, improve the employment situation, increase consumer confidence, increase consumer spending, grow the U.S. economy, etc.  Or so the domino theory goes.  Given my intuition that consumer confidence remains shaky and the new found personality of the consumer saver I am not sure if we will see the last domino for many years.  But I do know that this productivity figure is not replicable and even if it goes up it will increasingly be a measure of employee exhaustion; leading to decreases in productivity.

Importance grade: 5; in a normal period of economic growth this figure would be a 10.  But right now, the productivity measure is not really measuring real, sustainable economic growth.  Instead it is measuring the ability of business to get blood out of a stone.

Jason