CTH puts released economic data into ‘what does it mean‘ terms as a conversational priority.  The Bureau of Labor and Statistics (BLS) releases the first quarter productivity and costs report today [BLS Data Here].

Outputs, what was created, dropped 2.4 percent, yet labor hours used to create those outputs increased 5.5 percent.   This creates a productivity drop of 7.5% for the overall business.  The largest quarterly drop in productivity since 1947.

This is a warning indicator inside the economy to employees of large organizations.  CTH has been tracking productivity for quite a while, and the signs have all looked foreboding. {Go Deep}   Businesses cannot afford to keep employees on payroll if customer demand drops.

The per unit labor cost to make the products has increased 11.6%.   Wages have gone up 3.2% (pay increases) and productivity has dropped 7.5%, combined that creates the 11.6% increase in per unit cost to producers.

I have often used the example of making bread {Go Deep}.  If you are making 10 loaves of bread, there is a set amount of cost associated with each loaf created.  The total cost of each loaf is the total cost to produce the entire batch divided by ten.

If you have customers demanding 15 loaves of bread, you make more profit on the last five loaves because it doesn’t cost 50% more in material or labor to make 50% more loaves. Your productivity in the last five loaves is higher because the fixed costs of production (raw materials, energy) barely change, and the labor is only slightly higher.  However, the opposite is also true.

It costs more per loaf if you make fewer than ten loaves, because the fixed costs and labor are pretty consistent, yet the finished value of 7 loaves is less than the finished value of ten.  Your bread selling business is now making less money.

In the first quarter of 2022 (Jan-March) the cost of materials has skyrocketed.  The bakers have received 3.2% pay increases, they are working 5.5% longer hours, yet the amount of bread produced has dropped by 2.4 percent because consumer demand is shrinking.  Each loaf of bread now costs more to produce, production productivity has dropped and you are selling less.  What comes next?  Some of the bakers are going to lose their jobs.

“Nonfarm business sector labor productivity decreased 7.5 percent in the first quarter of 2022, the U.S. Bureau of Labor Statistics reported today, as output decreased 2.4 percent and hours worked increased 5.5 percent. This is the largest decline in quarterly productivity since the third quarter of 1947.”

[…] “Unit labor costs in the nonfarm business sector increased 11.6 percent in the first quarter of 2022, reflecting a 3.2-percent increase in hourly compensation and a 7.5-percent decrease in productivity.” (BLS REPORT)

The root cause of such a massive decline in productivity is a genuine decline in demand.

In the aggregate, consumers needed less goods and services.  This aligns with the diminished and lower retail unit sales [note: dollar-valued sales are skewed by higher prices].  It is a simple cause and effect.  When gasoline, energy, and essential products like food cost more, consumers have less money for other stuff.  Demand for the non-essential products drop.

As the demand drops, the productivity of the economic activity to generate those goods and services also drops.  However, the scale of the decline is the part to pay attention to.   We have been watching this continued drop in productivity for a year.  Another 7.5 percent drop in productivity (Q1) is huge for a single quarter.  Under normal circumstances this means more slack in the labor market, and that is what we should eventually see surface in lower employment.

Consistent productivity declines, as a result of lower consumer demand, lead to increased unemployment.

 

Posted in Big Government, Big Stupid Government, Dem Hypocrisy, Economy, Joe Biden, JoeBama, media bias, Notorious Liars, Professional Idiots, propaganda, Typical Prog Behavior, Uncategorized
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