June 3, 2021
Non-farm productivity rose 5.4% in the first quarter after having declined 3.8% in the fourth quarter. The first quarter increase consisted of an 8.6% increase in output combined with a 3.0% increase in hours worked. Hence, a 5.4% increase in productivity in that quarter. In the past 10 years productivity has grown by 1.2%. In the past year it has risen by 4.1%,
We do not want to get too carried away with this, but technology has been playing an increasingly important role in our economy. It certainly helped to get us out the recession quickly, and our view is that it will help businesses adjust to the new economy as it evolves.
If because of technological advancements productivity can rise by, say, 2.0% annually, then potential GDP growth (our economic speed limit) has picked up from 1.8% a few years ago to perhaps 2.4% (consisting of 0.4% growth in the labor force plus 2.0% growth in productivity. That is an important concept because the potential growth rate is basically the growth rate in our standard of living. The difference between 2.4% growth in our standard of living and 1.8% is huge — a 25% faster rate of growth rate in our standard of living. We will see how this develops, but it is an important piece to consider.