June 1, 2023

Non-farm productivity felll 2.1% in the first quarter of this year after  having risen 1.6% in the fourth quarter.  The first quarter decline consisted of a 0.5% increase in output combined with a 2.6% increase in hours worked. Hence, a 2.1% decline in productivity in that quarter.  While the economy has slowed,  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  0.8% 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


Charleston, SC