As Wendy reported here:
from the WSJ: Quarterly productivity figures are volatile, but the weak second-quarter number follows a 7.4% pullback in the first quarter, the sharpest drop in 74 years. …
John Mauldin, in his “A Weird Recession” newsletter, July 29, 2022, 2 weeks ago, has a section “Productivity Problem”. The hot link will take you to the relevant section.
One final thought. We use GDP as a proxy for economic growth. What it really measures (with a lot of flaws) is output, or production. That’s the “P” in GDP: Gross Domestic Product.
At the most basic level, GDP is simply the number of workers a country has times the average worker’s output. That’s what we call productivity. A worker takes something—knowledge, building materials, whatever—and adds value by producing something new. Combine all that new value and you get GDP growth.
If you want more GDP, math says you need some combination of more workers and/or more per-worker productivity. Postwar US economic growth happened for both reasons, but mainly productivity growth.
With population growth slowing, GDP has been more dependent on productivity growth. This is becoming a problem.
Mauldin blames the slowing GDP on the fiscal stimulus plans that pumped money into the market, and resulted in ‘stock buy backs’ rather than ‘growth’.
Mauldin includes a graph “Real Output Per Hour”, as a proxy for Productivity.
Based on this graph, Mauldin says that GDP has been declining for the last 2 decades.
That’s a noisy chart but if you take out the last two recession spikes, it looks like productivity has been broadly declining since the mid-1990s.
If you squint, and eye-ball a "mean’ line through the data points, you can almost see an inflection point about 1998, with the last 2 decades trending downward.
Now, add in the demographic factors that are shrinking the workforce. And on top of that, add the not-insignificant number of pandemic-driven early retirements and “Long COVID” disabilities. That means we need more productivity from the remaining workforce.
This is looking like a challenge. United Airlines CEO Scott Kirby said in a recent interview that sickness-related absenteeism is now so high, he thinks airlines will have to permanently add 4%?5% more workers just to accomplish the same amount of work. That’s staggering and, if correct, I see no reason to think it won’t apply in many other industries.
If a company now needs, for example, 105 workers to produce the same output that used to be possible with 100 workers, it is negative productivity growth.
MORE workers/labor in order just to MAINTAIN current output.
Mauldin blames this on the fiscal policies of the FED/government.
Mauldin uses McDonald’s attempts to use AI to fill the productivity gap as an example that AI and Robotics are not yet functional.
McDonald’s CEO Chris Kempczinski talked about automation on the company’s last earnings call.
“We’ve spent a lot of money, effort, looking at this. There is not going to be a silver bullet that goes and addresses this for the industry… The economics don’t pencil out,.”