Economic analysis can get weedy…. so a simple way to look at productivity is to think about baking bread in your kitchen.
If you were going to bake 4 loaves of bread it might take you 2 hrs start to finish. However, if you were going to bake 8 loaves of bread it would not take you twice as long because most of the tasks can be accomplished with simple increases in batch size, and only minor increases in labor time. Your productivity measured in the last four loaves is higher.
Economic Productivity is measured much the same way, within what’s called a production probability equation. Additionally, if two hours of your time are worth $40, each of four loaves of bread costs $10; but if you make 8 loaves in the same amount of time the labor cost is only $5/per loaf.
From 2007 through 2017 the average rate of productivity increase was 1.3%. In the fourth quarter of 2018 productivity was 1.9%.  That means total business output increased as more product was demanded from within the business operation. Throughout the economy people just wanted more stuff.  However, the most important numbers for MAGAnomics (Main Street USA) center around manufacturing and durable goods.

Improved gains in efficiency/productivity (more bread needed) supports faster economic growth without generating higher inflation; no need to raise prices because your cost to make each loaf of bread decreases the more you make. Higher sales and lower per unit cost means more profit for the bread-maker. No need to raise prices. Without inflation, there’s no motive for the Fed to raise interest-rates.
Increases in productivity generally means the economy is generating more stuff. The more stuff generated the higher the value of all economic activity; this increases GDP growth.
When we see higher productivity in direct alignment with GDP increases, the increased production indicates sustainable GDP growth.

BLS Report: “Manufacturing sector labor productivity increased 2.0 percent in the fourth quarter of 2018, as output increased 2.7 percent and hours worked rose 0.8 percent. Productivity increased 3.3 percent in the durable manufacturing sector” (link)

In durable goods we made 6.1 percent more stuff, and only worked 2.7 percent longer. The net is a 3.3 percent productivity increase.  This sector is critical because most large capital investment surrounds manufacturing.  There is a lag between investment, getting the manufacturing machines and buildings in place, and then actually starting the operation.

(link)

As we can see overall real wage growth continues to outpace inflation by about 1 percent.  That means more money in workers pockets, and more actual disposable income. [Keep in mind this are national averages; there are regional averages much, much, higher.]
Durable good productivity increases (3.3%) are a key sign the economy is continuing to expand.  People are in need of more stuff; businesses are producing that stuff to meet the consumer demand.  Increased hiring; more overtime; longer work shifts; longer production runs; more operational time on the equipment; less down time; all of this indicates the U.S. Main Street economy is expanding at a strong and steady rate.
Detractors will point to productivity gains from 1987 through 2004 as being stronger.  However, that’s a false comparative metric.  That historic period included the massive rise of computers and mobile technology which over-inflated the traditional baseline for strong structural productivity increase.
Back to the bread analogy…. Think of ’87 – ’04 like a period where you went from having to mix and kneed bread dough my hand, to a period where you have a new fangled electronic mixer to do the work.  Obviously you cannot duplicate that initial technological jump in bread dough productivity.  So comparisons to this historic period are false metrics.
Right now companies are hiring, real wages are growing, productivity is growing, and outputs are increasing as a result of continued, strong consumer demand; and keep in mind…. all of the new trade deals have yet to come into play.  The outcome of the trade reset will mean even more investment inside the U.S.  The future is bright…
Main Street is strong !

Posted in Auto Sector, Budget, Donald Trump, Economy, Election 2020, energy, media bias, NAFTA, President Trump, Trade Deal, Uncategorized, US dept of agriculture, US Treasury, USA, USMCA
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