USA Productivity: Strange Contraction In Growth

I feel that I am ready for most of the economic changes that get thrown at us.  But today even I am surprised at productivity growth released for 1Q2011.  On the surface, the words seem good but further examination gives pause.  From the report:

Nonfarm business sector labor productivity increased at a 1.6 percent annual rate during the first quarter of 2011, the U.S. Bureau of Labor Statistics reported today. The gain in productivity reflects increases of 3.1 percent in output and 1.4 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2010 to the first quarter of 2011, output increased 3.2 percent while hours rose 1.9 percent, yielding an increase in productivity of 1.3 percent.

The first surprise comes when one views the accompanying graph and considers historical rates of productivity growth.

Remember these are seasonal numbers.  A productivity improvement rate of 1.6% per year is not notable in a historical perspective.  The USA has had steadily improving corporate profits and crappy employment growth – this should be translating into strong productivity growth.  In the  graph below notice the negative trend in output per hour from the same quarter a year ago.

The rate of productivity is growing, but now less than the 2007 pre-recession rate.  And costs also have returned to the pre-recession growth rate as well.

All the words we have been hearing about the lean and mean USA business sector are apparently being disproven in just one BLS release.    All trends point to a less good productivity picture.  Business seems to have returned to the business of the past.    A key to the projections of increased manufacturing in the U.S. is keyed on superior productivity.  The latest data raises the question of where productivity may be going.

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