Productivity fell 0.5 percent in the second quarter of 2016 and labor costs rose by 2 percent.
This marks the third straight quarter of falling productivity in the U.S., and the longest consecutive streak since 1979. From 2000-2007, amid war and the beginning of the financial crisis, average worker productivity growth in the U.S. was 2.6 percent. Comparing these numbers with 2007-2015, the average worker productivity was just half that: 1.2 percent.
Worker productivity is the determining statistic in predicting fluctuations in wage growth. Some economists state that “slow productivity may be restraining wage growth,” reports The Wall Street Journal.
If stagnation or decline in productivity continues, America could see a cutback in both new employment and little to no change in wage growth.
The Federal Reserve Bank of the U.S. will come to a decision on whether to raise or lower interest rates at their September meeting.
The dollar has dropped precipitously over the last year, down 4 percent since January. Manuel Oliveri, strategist at Credit Agricale SA, says that “the market continues to doubt the Fed is ready to tighten monetary policy,” adding that the “dollar will remain under pressure,” reports Bloomberg.
Only 20 percent of stock traders expect the Fed will raise rates, according to analysis by Bloomberg.
Economist Patrick Newport said that this continued decline in worker productivity is “a signal that the economy is not going very fast and interest rates should stay low,” the Journal reports.
Former Fed Chairman Ben Bernanke wrote in his blog Monday that the economy running a bit “hot” may eventually “lead to better productivity performance over time.” Bernanke added that whatever policy makers choose, the implications of those choices “are generally dovish, helping to explain the downward shifts in recent years in the Fed’s anticipated trajectory of rates.”
Current Fed Chairwoman Janet Yellen said she is “cautiously optimistic” about the future. She also stated it “would be helpful to adopt public policies designed to boost productivity,” like incentivizing investment, reports the Journal.
Experts see businesses reacting to the continued decline in worker productivity in two ways: companies will supplant labor with new investments in technology, or raise prices to offset rising labor costs and lower output.
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