Productivity Grows in 4Q2011, No Recession in Sight

Based on preliminary data, the Bureau of Labor Statistics reported that productivity increased at an annual rate of 0.7%.  The market was expecting between 0.5% and 0.7%.

Although both the cost and productivity measurement methodology used by the BLS is a crude tool to an industrial engineer, this methodology does track recessions.  The current levels are well above recession territory.

Total Output continues to rise:

But the output per person is on a two year “less good”decline (negative second derivative).

All while costs per unit produced remain subdued:

The headlines from the press release:

Nonfarm business sector labor productivity increased at a 0.7 percent annual rate during the fourth quarter of 2011, the U.S. Bureau of Labor Statistics reported today. The gain in productivity reflects increases of 3.6 percent in output and 2.9 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the fourth quarter of 2010 to the fourth quarter of 2011, productivity grew 0.5 percent, as output rose 2.3 percent and hours rose 1.8 percent. (See chart 1) Annual average productivity increased 0.7 percent from 2010 to 2011.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.

Caveats Relating to Productivity

Productivity is determined using monetary criteria, and does not recognize outsourced man hours – in other words, if a business cuts half of its workforce by outsourcing a sub-component or sub-service, this would be a 50% productivity improvement.

These productivity measures describe the relationship between real output and the labor time involved in its production. They show the changes from period to period in the amount of goods and services produced per hour. Although these measures relate output to hours at work of all persons engaged in a sector, they do not measure the specific contribution of labor, capital, or any other factor of production. Rather, they reflect the joint effects of many influences, including changes in technology; capital investment; level of output; utilization of capacity, energy, and materials; the organization of production; managerial skill; and the characteristics and effort of the work force.

Econintersect believes a better measure (if you must use monetary tools to tract productivity) would be competitiveness.

Looking at productivity / output long term – output fall below 0% year-over-year change is a good sign that a recession is underway.

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