If the Economy were a car, productivity would be the engine. Heated seats, on-demand 4-wheel drive and light-sensitive tinted windshields, are all very nice. But they mean little if the engine doesn’t turn and the car just sits in the driveway. The latest productivity data from the Commerce Department confirms that our economic engine is sputtering.
If you strip away all the bells and whistles of economic analysis, the simple truth is that the increased living standards that have taken us from the stone age to the digital age happened because we increased our productivity. Better plows, windmills, bulldozers, factories and, more recently, better software, technology and automation, have allowed economies to produce more output with less human effort. This means there are more goods and services for more people to share and workers can work less to acquire those goodies. When productivity stops increasing, no amount of financial gimmickry can compensate.
With this in mind the latest batch of productivity data should have significantly changed the conversation. But like other pieces of evidence that point to a weakening economy, the news made scarcely a ripple. The fact that few opinions about our economic health changed as a result, confirms just how big our blinders have become.
Most of the economic prognosticators were fairly confident about the Second Quarter numbers. After all, productivity had unexpectedly declined for the prior two quarters, and given the optimism that is ingrained on Wall Street and Washington, a big snap back was expected. The consensus was for an increase of .5%. Instead we got a .5% contraction. That’s a huge miss. The contraction resulted in three consecutive declines, something that hasn’t happened since the late 1970’s, an era often referred to as the “Malaise Days†of the Carter presidency. That time, which spawned such concepts as “stagflation†and “the misery index,†was widely regarded as one of the low points of U.S. economic history. Well, break out your roller disco skates, everything old is new again.
