December 7, 2022

Non-farm productivity rose 0.8% in the third quarter after having fallen 4.1% in the second quarter after having plunged by 5.9% in the first quarter.  The third quarter increase consisted of a 3.3% increase in output combined with a 2.5% increase in hours worked. Hence, a 0.8% increase in productivity in that quarter.  While the economy has slowed and business people are not reducing headcount.  Give the extent of the current labor shortage they are still inclined to hang on to bodies since it will be difficult to find replacements once growth re-accelerates.  But hanging onto those bodies that perhaps should be dismissed given that demand has dropped, means that productivity has fallen during the course of the past year.

That decision may be an acceptable solution for a while but, ultimately, the drop in productivity will shrink profits and force firms to lay off workers.

Stephen Slifer

NumberNomics

Charleston, SC