Amid falling worker productivity, payroll figures come under scrutiny
While unemployment in the United States remains low, it coincides with a significant decline in worker productivity.
The Bureau of Labor Statistics (BLS) reported Aug. 9 that nonfarm business productivity fell 4.6% in the second quarter after falling even more — 7.4% — in the first quarter.
It came as U.S. employers added 528,000 jobs in July and the jobless rate fell to 3.5%, matching a 50-year low hit just before the coronavirus pandemic began in early 2020.
Jan Hatzius, chief economist at Goldman Sachs, questioned those numbers, saying it’s “possible that the current number of jobs is too high.”
Whether that’s true or not, the jobs report counts the payroll, not the people working. Thus, the person who holds two part-time jobs is counted twice, once for each job.
More Americans than ever are now working two jobs, according to the BLS, which could be a sign that people are trying to cope with inflated food and energy prices.
In June, 426,000 Americans were working 70 hours a week, according to the bureau.
While more people are working and getting paid more, if that doesn’t translate into increased production, it could eventually impact living standards.
“A country’s ability to improve its standard of living over time depends almost entirely on its ability to increase its output per worker,” New York Times economics columnist Paul Krugman wrote in his book The Age of Diminished Expectations. .
While the Federal Reserve has steadily raised interest rates to rein in persistently high inflation, higher costs are manifesting themselves in the workplace.
“The trend in productivity growth has worsened relative to pre-pandemic, and soaring unit labor costs make the Fed’s challenge to bring inflation back to its 2% target all the more difficult” , Wells Fargo economist Sarah House said in a statement. search note.
So far this year, the Fed has hiked rates four times, from near zero in March to a range of 2.25-2.50% in an effort to raise borrowing costs and curb growth. economic growth.
Current unit labor costs — the ratio of hourly compensation to labor productivity — rose 10.8% in the second quarter of 2022, the most in 40 years, according to the BLS. This breaks down into a 5.7% increase in hourly compensation and a 4.6% decrease in productivity.
“Dips of this magnitude are not sustainable – scorching labor costs will eventually lead to hiring freezes and outright layoffs unless there is a strong rebound in growth. Rising probabilities of recession suggest the former is more likely than the latter,” Bloomberg economists Yelena Shulyatyeva and Eliza wrote. Winger.
As for what’s behind the drop in productivity, workers moving from job to job could be one of the reasons.
“Job shifting enabled by intense competition for workers could be a factor,” the website cfo.com reported.
Small businesses are another sector affected by a labor shortage.
“Hiring has never been harder for small business owners,” said National Federation of Independent Business (NFIB) chief economist Bill Dunkelberg. “The labor shortage remains frustrating for many small business owners as they continue to deal with inflation and other economic headwinds. Owners are adjusting business operations where they can to help mitigate lost sales opportunities due to staff shortages.
An NFIB survey showed that 49% of small businesses had unfilled openings in July.
Compared to the same quarter a year ago, labor productivity in the non-farm business sector fell 2.5%, reflecting a 1.5% increase in output and a 4.1% increase in hours worked. The 2.5% drop is the biggest drop in the series, which began in 1948.
However, real hourly earnings, which take into account changes in consumer prices, fell 4.4% in the second quarter of 2022, after falling 4.4% in the first quarter of 2022, the BLS said.
On the bright side, labor productivity in the manufacturing sector rose 5.5% in the second quarter of 2022, as output rose 4.3% and hours worked fell 1.1%, the report said.
Manufacturing output is now 3.6% above its level in the fourth quarter of 2019, the last quarter unaffected by the COVID-19 pandemic, according to the BLS.