Payden & Rygel: Average US labor productivity in past decades

16 september 2024

Arbeidsmarkt

Chart of the week: Average US labor productivity in past decades (excluding recessions).

Lost amid the hoopla about the Consumer Price Index (CPI) report and the incessant 25 versus 50 basis points of rate cuts at next week's FOMC meeting debate, labor productivity, or output per hour worked, was revised up from 2.3% to 2.5% quarter-over-quarter annualized rate for Q2. More importantly, the average productivity growth of the last four quarters outpaced the average productivity outside recessions in the previous five decades!

Why should we care? Well, traditional economic theory states that inflation is the residual of real output growth minus productivity. So, higher productivity allows the economy to expand above trend without causing inflationary pressures, supporting the case of a 'soft landing'. Indeed, when productivity was revised, unit labor costs (or the cost of labor to produce a unit of output) were revised down to 0.4% quarter-on-quarter and just 0.3% versus a year ago, the lowest since 2013. For policymakers, higher productivity bodes well for growth despite the recent softening trends in the labor market. For the rest of us, the data points to more growth with less inflation - what's not to like?

16092024 Payden & Rygel