Paid more to produce less…

**U.S. Productivity Falls for Second Straight Quarter**
**Rapidly rising labor costs add to inflation pressures as the Federal Reserve attempts to slow price increases**
**By Jeffrey Sparshott, The Wall Street Journal, Aug. 9, 2022**

**U.S. labor productivity declined for the second consecutive quarter as overall economic output contracted and employers spent more on labor as they added workers....**

**U.S. nonfarm labor productivity — a measure of goods and services produced in the U.S. per hour worked — fell at a seasonally adjusted annual rate of 4.6% in the second quarter from the prior quarter...Unit labor costs, a measure of worker compensation and productivity, increased at a 10.8% pace in the second quarter from the prior quarter...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. ...**

**Rising productivity is the key to improving living standards; it allows companies to raise wages without raising prices and fueling inflation. Instead, businesses appear to be paying workers more to produce less. The higher unit labor costs suggest companies will either endure lower profits or pass on higher costs to consumers....** [end quote]

Labor productivity is volatile but it’s clearly looking bad since 2020. It hasn’t looked this bad since the recessions of 1973-74 and 1980-82.…

Average hourly earnings grew 5.2% in July from a year earlier, and annual wage gains have exceeded 5% each month this year. This is slower than the growth of inflation so real wages are falling although the burden on employers is growing.

This is a double whammy for the stock market. The Fed will be continue to raise the fed funds rate to try to control inflation. Meanwhile, lower productivity and higher labor costs will reduce corporate earnings.


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Isn’t that normal in an economic recovery? As business improves, the first response of the “JCs” is to get the whip and beat more work out of the staff they already have. That is the refrain I heard, repeatedly, from fast food staff last year: working at a frantic pace because of short staff and extreme long workweeks, piled high with OT.

There was a news report last year of the entire staff of a fast food place quitting, on the same day, because they were fed up with the pace and the hours.

As more staff is added, the pace slacks, because no-one can work at 150% forever.



Paid more to produce less
Labor productivity is volatile but it’s clearly looking bad since 2020. It hasn’t looked this bad since the recessions of 1973-74 and 1980-82.

Just to clarify, the above statement on productivity data applies to the change in labor productivity, no?

Labor productivity itself is on a long-term trajectory up, and productivity today is higher than all pre-pandemic history (

It is probably more accurate to say that, on average through history (even quite recent history such as since pre-pandemic), labor is paid to produce more. This only makes sense given how technology advances.

As far as investment implications, corporate profit margins have been quite healthy and are at the upper end of their historical range as a percent of GDP (

Obviously these statistics will be volatile near economic dislocations such as recessions and one thing most people probably agree on is that we are in unusual economic times.


Productivity is an unmitigated disaster right now. As a nation, we have an additional 2M+ people working in 2022, and they have contributed nothing at all to GDP. That is really very bad.

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