America’s productivity fell faster than any point since 1981
That sounds terrible. But there are plenty of reasons it might not be a bad sign for the nation’s economic outlook.
But just looking at these bad numbers in a vacuum doesn’t tell us very much about the trend in the job market, said Wells Fargo Senior Economist Sarah House. A single data point — such as a productivity drop — rarely paints a complete picture, she added.
And this past summer was an unusual time in the recovery. The pandemic was worsening. The supply chain problems were becoming a full-blown crisis. And the economic sugar rush from the stimulus package had started to wear off.
“You had this timing mismatch in terms of what was happening between Delta, and we were coming off the high of the reopening and all the fiscal support we had,” House said.
So it isn’t unusual to see a productivity slow down after a period of intense ramp up, such as we’ve seen during earlier phases of the recovery.
“Output isn’t rising as quickly as you’re getting into the more mature part of the recovery and as labor is recovering faster,” said House. As the jobs market returns to normal, for example, the number of hours worked goes up, too.
“Supply chain issues were holding output back even more,” she added.
But the falling productivity also means that it’s getting harder to find workers, and more expensive to hire them, without passing on the additional costs to consumers, who are already paying more amid rising raw material and shipping costs.
“We think wage growth will remain elevated, but we expect some moderation in the second half of next year,” House said. “That will take some of the pressure off of businesses.”
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