Productivity in the U.S.

Productivity in the U.S.

Global Interdependence Center Chicago, IL June 24, 2019

William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago

After falling 4% during the Great Recession, real GDP expanded by an average annualized rate of 2.3% during the expansion

Output fell 4% during the Great Recession

The current expansion has been the slowest expansion since the Great Depression

During the Great Recession employment fell by 8.7 million workers, representing 6.3% of the employment base

Employment fell by 8.7 million workers

Recover Losses

Net Recovery

During the Great Recession the unemployment rate rose 5.6 percentage points to 10% and it took nearly ten years to return to the pre-recession low

Wages and benefit costs continue to increase at a moderate rate, although it may finally be picking up some its pace

There is a very strong correlation between 9-month lead NFIB: planning to raise compensation and Employment Cost Index: wages and salaries

Slow productivity growth coming out of the Great Recession helps explain why relatively solid employment growth has not translated into higher wages

A large part of the weakness in productivity growth had been the weak pace of investment, coming out of the Great Recession – beginning in 2016 investment began to expand

The improvement in investment may help explain the productivity growth improvement over the past couple of years

Even with compensation rising, improving productivity growth is helping to keep unit labor cost growth down

Corporate profits continue to improve

The stock market is at a near-record high

Inflation remains restrained and is below the Fed target of 2%

Summary • Slack in the labor market was substantial following the aftermath of the Great Recession • Economic growth has been restrained and had been supported largely by a substitution from capital to labor • The lack of capital investment had led to slow productivity growth and modest gains in wages • Recent improvements in capital investment has been associated with gains in productivity growth and reductions in unit labor cost growth that should be able to support increases in wages without inflationary consequences

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