Productivity Growth Improvement

Another stat which has been in the doldrums in this expansion is productivity growth. Low productivity growth has been called an impediment to real wage growth. It has been so low this recovery, some complain productivity isn’t been measured correctly.

By ‘eyeballing’ the economy, some skeptics claim it’s unlikely that productivity has been weak when the mobile internet has proliferated in the 2010s.

Q2 productivity growth improved. Quarter over quarter seasonally adjusted annualized productivity growth was 2.9% which beat the consensus for 2.5% growth. The previous quarter was revised down from 0.4% to 0.3%.

As you can see from the chart below, the 5-year annualized productivity growth hit 1% for the first time since 2014. In the chart below labor growth is a plug which means it’s the difference between GDP growth and productivity growth.

As you can see, 5-year annualized GDP growth in 2018 is on pace to accelerate after being stagnant since 2014.

Productivity growth accelerated because output growth increased while hours worked slowed. Because compensation growth slowed, unit labor costs were down 0.9% on a seasonally adjusted annualized run rate.

This missed the consensus for -0.2%; the lowest estimate which was -0.6%. Q1 unit labor cost was revised from increasing 2.9% to 3.4%. As you can see, both productivity and unit labor costs reversed Q1 results.

This unit labor metric was interesting because typically those who follow the business cycle claim inflation at the end of the cycle occurs because the labor market gets too full.

Productivity Growth – The Weak Expansion Turning Around?

There have been a few stats this cycle which haven’t been up to snuff. One example is the wages millennials have earned compared to previous generations. Millennials have been saddled with student debt only to get the same salaries or lower ones, in real terms, as compared to older generations.