US Productivity Has New Spring In Its Step

US Productivity Has New Spring In Its Step
Paul Allison, CFA

about 1 month ago2 mins

If you feel like you’ve been killing it at work these past few months, well, it looks like you have – at least, according to this economic gauge. US productivity surged in the third quarter of last year – the most recent reading.

What does this mean?

Productivity measures the output per worker, or how much each one of us churns out in a given period of time, with a given set of tools. It’s massively important because, without productivity gains, countries would struggle to improve living standards over time. Think of it this way, if each worker suddenly produces less, even as the number of workers grows, there’d soon be less to share with everyone – including the folks who are not working. Now, companies can boost productivity by investing in new machinery, tools, software, and the odd morale-boosting, end-of-year party. And, judging by this chart from Trading Economics and the Bureau of Labor Statistics, it looks like US firms have been pulling out all the stops lately, with productivity rising to levels rarely seen since the early-mid 2000s. What’s more, with AI technologies set to transform industries, we might soon see a long string of gains in productivity.

Why should you care?

One word: inflation. Yep, if the cost of everything is going up, including your wages, then firms have to be able to offset that somehow if they want to protect margins. They can cut costs, of course, raise prices, eke out efficiencies, and tighten the belt in general. But a better way to prop up margins is to grow productivity. After all, those gains actually grow the pie. That’s why companies make those big investments in the first place – and it’s a massive part of the reason why US firms have been able to keep their margins looking so good, even in the face of red-hot inflation and wage growth.

So, you can look at this chart as a recognition, of sorts, of all your hard work. It’s not quite a year-end bonus, but hey, think about the greater good, and all that.



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