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

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There also is improvement in the health care sector.

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The above look at productivity is down and dirty - but it should provide a realistic ballpark productivity assessment. Real productivity should not have significant fluctuations except during recessions which makes one skeptical of the headline view.

Another way of looking at productivity is the year-over-year rate of growth of GDP per employed population - red line) vs. GDP per capita (blue line). This metric is partially showing how well business is utilizing the labor force - and in a rough way looks at productivity growth if one eliminated government transfer payments from GDP. (see red line in graph below):

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The above graph suggests productivity growth is roughly 1.1 % per year. This analysis also suggests for the last two years, the health of the economy has been improving.

The problem really is that economists only understand money flows - and how they got into measuring productivity is beyond my comprehension. This is an extremely nuanced calculation which is never totally accurate as you are shifting technology or methods. but the core of industrial engineering is a measure of labor hours - and that is foreign to they way the BLS measures productivity..

As one outsources, one would expect labor hours to drop - and that should be relatively accurate.

But the prime reason one is driven to optimize productivity is profits. when a methodology to improve productivity is considered, this calculation is about costs - how much does it cost to get the productivity gain.

Now the spoiler today is likely logistics - as robotics mean that one can produce a product literally anywhere in the world (so labor cost is no longer the prime factor - although pollution is and many processes are inherently dirty). Logistics becomes the primary element which means manufacturing is coming back to the USA.

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