U.S. Productivity on the Rise

Date: August 13, 2015

New numbers reflect overall economic growth and steady hiring over the last three months.

Back from the dead, or at least back from the red, the Labor Department’s latest numbers on how the economy performed in April to June show U.S. productivity rising at a steady pace.

In the second quarter, worker productivity increased at a seasonally adjusted annual rate of 1.3 percent, compared with a 1.1 percent decline in the first quarter of 2015. The climb corresponds to an overall boost in economic growth, which expanded at a 2.3 percent annual rate in the second quarter compared with a dismal 0.6 percent in the first quarter, the Associated Press reported.

“Higher productivity usually indicates that workers are producing more. It’s generally a positive sign that businesses are operating more efficiently,” says NFIB Media Director Jack Mozloom. “It could also mean, however, that some businesses are doing more with less and that is very likely the case with many small employers.”

The productivity numbers, which measure the efficiency and output of workers, have struggled to get back on solid ground since the recession. The strong quarter comes with news that employers added 215,000 jobs and unemployment stayed at a low 5.3 percent in July, according to the Chicago Sun-Times. Productivity had increased only 0.3 percent in the last year, behind the long-run average of 2.2 percent.

Weak productivity growth can increase hiring in the short run, as companies have to add more workers to boost output. But it also holds back wage growth. Faster productivity growth allows employers to boost pay without pushing up inflation, according to the AP.

“The cost of labor is higher because of Obamacare and in many states because of mandatory higher minimum wage and paid leave benefits,” Mozloom says. “If sales aren’t increasing to keep up with higher labor costs, small businesses have no choice but to try to do more with less. That could mean fewer hours, fewer workers and more automation.”

NFIB’s July Small Business Economic Trends report released this week showed a 1.3-point increase in the Small Business Optimism Index. Additionally, there was growth in current job openings, plans to increase employment and business owners that say now is a good time to expand. 

Get more insights and numbers in July’s SBET report

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