Wednesday, June 6, 2012

Productivity Long Term Historical Chart

1Q12 Labor Productivity was revised lower by the BLS today to -0.9% q/q.  The fact that productivity fell is an extremely troubling sign for the economy because almost all real growth comes from getting more production from the same amount of labor.  Without productivity gains, the only other source of economic growth is growth in population.  1Q's drop continues a troubling slowing of productivity growth in the US.  A long term chart is below.

While the trend is still positive, the output per hour of labor has started to move sideways in recent years.  Since 2005 the average yearly gain in productivity has been 1.6%.  Between 1948 and 2005 the average gain was a full percentage point higher at 2.6%.  To make things worse, the 2005-2011 period is skewed by a big increase in productivity in 2010 that is primarily attributable to job cuts rather than new technology or business processes.  Excluding 2010, productivity has only grown by 1.3% per year since 2005.  Make no mistake--the underlying root of the world's economic problems isn't debt, it's lack of productivity growth.

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