“In 1987, Robert Solow, a Nobel laureate in economics, famously said: “You can see the computer age everywhere but in the productivity statistics. The failure of massive investment in information technology to boost productivity growth became known as the productivity paradox. (The Economist, Sept. 21, 2001)

A glance at the accompanying chart indicates that productivity in the non-farm sector is improving but remains at very weak levels compared to two decades earlier.

There is a tight correlation between long-term productivity growth and the growth in per capita real income. The reason slow productivity growth is a concern in that productivity growth is the single most important economic indicator which determines how fast living standards can grow.

As of the first quarter of 2018, non-farm productivity in the U.S. increased by 1.3% y/y versus the 0.7% annual average rate of increase over the previous ten years. However, the long-term average annual productivity gain was a much higher 2.1% between 1947 and 2017.

Unit labor costs, which are a proxy indicator of cost-push inflation pressures, increased 2.7% in the first quarter of 2018 compared of 2.1% in the fourth.

However, the twelve-month measure of unit labor costs presents a more accurate gauge of the situation. Unit labor cost were up 1.1% y/y in Q1 compared to a 1.7% gain in the fourth quarter.