PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Poor Productivity, Poor Investment

By at 12 August, 2015, 9:01 am

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by Raymond J. Keating-

When looking at key measures on the economy, productivity growth, or the lack thereof, points us in two directions.

First, it tells us something about investment, since investment in new and improved tools, equipment and technology enhances labor productivity. Second, productivity growth serves as a key determinant of income, that is, in general, the greater the productivity, the higher the income level.

So, what are the latest numbers and trend telling us about productivity?

To be clear, as explained by the Bureau of Labor Statistics, “Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.”

The BLS released its first estimate of second quarter productivity, along with recent revisions, on August 11.

It was noted: “Nonfarm business sector labor productivity increased at a 1.3 percent annual rate during the second quarter of 2015.”

That 1.3 percent growth came after declines of 1.1 percent in the first quarter and 2.2 percent in the fourth quarter. For all of 2014, productivity barely budged with growth of only 0.7 percent, and that followed on no growth for 2013, 0.9 percent for 2012, and 0.2 percent for 2011.

So, in effect, we’ve experienced very little productivity growth for four-and-a-half years now.

Unfortunately, that’s not all that surprising given the lack of private-sector investment growth since 2006. And the most recent GDP data, as I explained in a recent SBE Council Cybercolumn, saw investment turn down: “Most troubling is that real private investment nearly ground to a halt at 0.3 percent growth in the second quarter of this year. In fact, real fixed nonresidential investment actually declined by 0.6 percent. That was the first decline in business investment since the third quarter of 2012.”

If we want to see incomes rise, then we need to see productivity pick up, and that requires increased private-sector investment. Given this economic reality, perhaps it’s time for the current presidential administration to reverse its agenda of higher taxes and increased regulation on investors, entrepreneurs and businesses and turn toward pro-growth policy solutions. Hey, it’s just a thought.

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

 

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