May 8, 2025
Non-farm productivity declined 0.8% in the first quarter after rising 1.7% in the fourth quarter. The first quarter decline consisted of a 0.3% decline in output combined with a 0.6% increase in hours worked. Hence, a 0.8% decline in productivity in that quarter. In the past year productivity has risen 1.4%. Unfortunately, the productivity growth rate in the first quarter was distorted by the huge increase in imports as firms tried to get goods into the country ahead of the imposition of tariffs. But more imports in the first quarter should be followed by fewer imports in the second quarter and a stronger-than-normal increase in GDP in that quarter which should then boost productivity growth in Q2.
Productivity data are notoriously volatile so reading much into movements that occur over a couple of quarters is risky. But it is possible that because firms have been unable to hire as many workers as they wanted for the past couple of years they have been spending a lot of money on technology to boost output without increasing headcount. It could be that all of that spending on technology is beginning to pay dividends in the form of faster growth in productivity. We think that is the case and, as a result, we expect productivity growth to continue at a rate far in excess of the 1.2% pace it has registered on average in the past 23 years. Our expectation is that it will grow 2.0% in 2025.
Stephen Slifer
NumberNomics
Charleston, SC
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