PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Small Business and the Economy: Slow Productivity Growth in the First Quarter

By at 4 May, 2018, 9:50 am

by Raymond J. Keating-

In the post-World War II-era, annual U.S. nonfarm labor productivity – that is, output per hour calculated by dividing an index of real output by an index of hours worked by all persons – has averaged 2.1 percent.

Unfortunately, productivity growth has been a hurdle to faster economic growth since 2006, with productivity growth averaging only 1.2 percent from 2006 to 2017.

Poor nonfarm labor productivity growth continued into the first quarter of this year, according to the latest report from the U.S. Bureau of Labor Statistics. After respectable gains in the second and third quarters of last year, productivity growth slowed to only 0.3 percent in the fourth quarter 2017 (though that was revised upward from being flat), and 0.7 percent in the first quarter 2018.

Looking ahead, real reasons exist to expect a pick-up in productivity growth, in particular, given the strong business investment numbers we’ve seen for the past five quarters. After all, it’s business investment that spurs efficiency and innovation, which then feeds into productivity growth.

On the policy front, enhancing the potential returns on investment and entrepreneurship via further tax and regulatory relief, as well as removing current uncertainties emerging due to protectionist trade impulses from President Trump, would be positives for productivity, economic and income growth.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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