Four years into an expansion, the productivity of American workers has slowed and some economists say there are few signs it will soon rebound.
Employee output per hour grew at an average 0.7% annual rate over the past 12 quarters, which economists at JPMorgan Chase & Co. say is a pace so slow it’s rarely seen outside of recessions. Gains since the recovery began in June 2009 have averaged 1.5%, the weakest of the nine postwar expansions that lasted as long, according to IHS Global Insight.
One reason is that companies have been slow to boost spending on more sophisticated machinery and time-saving devices such as faster computers -- a driver of the late 1990s boom in productivity. Without bigger gains in efficiency, it will be difficult for economic growth to gain momentum, and worker pay may suffer even as businesses are spurred to boost hiring in the short term.
“Productivity is having a very slow run,” said Michael Feroli, chief U.S. economist at JPMorgan Chase in New York. After an initial surge in 2009, “it’s been pretty disappointing since then. It means the economy’s speed limit might be lower than we thought.”
The pace at which an economy can grow without stoking inflation, which economists term its speed limit, reflects the rate of growth of the labor force plus how much each worker can produce. Smaller gains in productivity therefore mean advances in gross domestic product will also be restrained.
Stocks rose, after the Dow Jones Industrial Average climbed above 15,000 for the first time yesterday, as earnings forecasts from Whole Foods Market Inc. and Electronic Arts Inc. beat analyst estimates. The Dow gained 0.3% to 15,105.12 at the close in New York.
Elsewhere today, signs that Germany is beginning to recover are mounting after Europe’s largest economy reported industrial production unexpectedly rose in March for a second month.
When the U.S. economy slumped during the last recession, business investment in equipment and software plunged even more, causing its share of GDP to shrink to 6.4% by mid-2009, almost a four-decade low. At 7.5% in this year’s first quarter, the share is still below both its pre-recession level and the record 9.6% reached in mid-2000, during the productivity boom.
“The pace of technological improvement isn’t progressing as much,” and “computing power isn’t growing as fast,” Feroli said. “We need to see stronger, sustained growth in investment spending.”