Brace For Impact—The Charts Ain’t So Good

As is its want, bubblevision proclaimed good news yesterday because productivity was up in Q2. Then again, we don’t exactly see the good news in three years of stagnation on the crucial productivity front.

But them’s the facts. Yesterday’s Q2 reading of 113.94 on the nonfarm productivity index was still 0.8% below the 114.81 level posted back in Q3 2020. Three years of wobbling around the flat-line, in fact, is not good news by any definition we are aware of.

Nonfarm Labor Productivity Index, Q3 2020 to Q2 2023

Again, historical perspective is essential. And when you examine the 65-year chunk of time from Q1 1947 thru Q1 2012, you get a compounded annual labor productivity growth rate of 2.26%. Surely, that’s a solid benchmark if there ever was one, but it just plain hasn’t held up.

During the 11 years since Q1 2012, productivity growth through yesterday’s alleged good news for Q2 2023 has averaged only 1.09% per annum. That’s not even half of the historic norm.

Moreover, we did not pick Q1 2012 as the demarcation point on a random basis. Actually, that was the date at which the Fed allegedly upped the “economic science” of its game by officially embracing a 2.00% inflation target. According to its author and advocate, and then chairman of the Fed, Ben Bernanke, allowing inflation to drop by even a smidgen below that “goal” would result in serious deflationary pressures and the unnecessary weakening of the macro-economic growth rate. So the thing to do was open the money spigot wide until inflation got back to 2.00%, and, in a late after-thought, had actually exceeded it by enough to make up for lost ground when the PCE deflator had a “1” handle.

Needless to say, when productivity growth drops to just 48% of its long-term average, it’s already game over for economic growth and the theory that easy money helps it along. After all, productivity has accounted for well more than half of the historic GDP rise, but despite all the Fed’s machinations this vital elixir of prosperity has been weak and getting weaker.

US Nonfarm Labor Productivity Index, 1947 to 2023

At the same time, there is no mystery as to why productivity growth has hit the skids. To wit, there has been no increase in real net investment in the nonfarm business sector since 1999.