4Q2018 Final: Headline Productivity Improved But Roughly The Same As Unit Labor Cost Growth

Preliminary Chart for 4Q2018

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Final Chart for 4Q2018

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My view of Productivity

My view of productivity is very different from the headline view. Productivity is complicated - far too complicated for economists to come to a conclusion satisfactory to this simple Industrial Engineer:

Generally speaking, productivity is, in industrial engineering, defined as the relation of output (i.e. produced goods) to input (i.e. consumed resources) in the manufacturing transformation process.

Productivity assessments even within a single company are very complicated, and are impossible to accurately forecast when one wants to discuss an entire sector or economy. There are some rough tools which will get one into the ballpark of productivity improvement. The following graphs on manufacturing, investment, retail trade and health care are comparing inflation adjusted growth of that sector to employment growth in that sector - as well as for the economy overall.

In the case of the economy overall, output (blue line) and employment are now growing at the same rate.

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In the case of manufacturing, output (blue line) and employment are now growing at the same rate. Prior to the Great Recession, output grew whilst employment fell.

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The above chart is saying there is no productivity growth in manufacturing - even with our belief that robotics are doing away with jobs.

A slightly different situation is true with construction. Since 2012, construction output and employment are growing at the same rate implying there is no productivity growth. But during the Great Recession and its immediate aftermath, productivity appears to have declined.

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The only real productivity growth I can find is in the services sector. Beginning with the retail sector, the obvious gain in productivity is seen thoughout the graph below and continues today.

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