Well, what do you know.
We can finally report that everyone agrees that US Labor productivity is increasing. As a matter of fact, it realized the largest increase (Q2 2023) is almost 3 years. Productivity grew by 3.7% (annualized) rate, after declining during Q1 2023; wages, adjusted for inflation, only rose by 2.7%, the first increase in a year. (That’s a 50% increase over the economists projections.) Which means rising wages were offset by the increase in productivity. (Unfortunately, the hours worked per week also dropped.)
(Maybe I should remind us all of the definition of productivity. It is the non-farm business employee output per hour.) The US labor productivity increase for the quarter that just ended more than helped to offset rising labor costs. That means that “unit labor costs” (what an enterprise pays employees to deliver one unit of output) rose at 1.6%, compared to 3.3% in Q1 2023.
When productivity increases, inflationary pressures are greatly eased. (This is why businesses invest in new technology, software, and/or equipment- the goal is to improve corporate efficiency.)
Which brings up an interesting fact or two. Economists from MIT (David Atkin and Antoinette Schoar) and UCLA (Sumit Shinde) determined that folks who work from home full-time are 18% less productive when they are found at the office. (Now, you know why so many executives are promoting the return to the office!)
We’ll have more to say about this soon.
