PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Productivity Growth Jumps in First Quarter 2019

By at 3 May, 2019, 9:07 am

by Raymond J. Keating-

According to the latest report from the U.S. Bureau of Labor Statistics, annualized nonfarm labor productivity jumped by 3.6 percent in the first quarter of 2019. That was the best rate of growth since the third quarter of 2014.

In fact, the first quarter 2019 report was solid across the board, with output up by 4.0 percent, hours worked increasing by 0.5 percent, real hourly compensation growing by 1.7 percent, and with improved efficiency, unit labor costs declining by 0.9 percent.

The 3.6 percent gain in productivity during the first quarter came in well ahead of the post-WWII annual average of 2.1 percent. The same was the case for the 2.4 percent gain in productivity when comparing the first quarter of 2019 to the first quarter 2018.

(By the way, as noted by the BLS: “Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers.”)

While this data tends to be volatile from quarter to quarter, it also is worth noting that nonfarm labor productivity growth has been pretty solid in three of the last four quarters.

Source: Federal Reserve Bank of St. Louis, FRED

For good measure, looking at annual growth, 2018’s productivity growth was revised up from 1.3 percent to 1.8 percent. That was the fastest annual rate of growth since 2009 (with the data skewed that year due to the recession), and when looking at non-recession years, since 2007.

Productivity growth, of course, is critical to economic and wage growth. Productivity benefits directly from entrepreneurship, private investment and innovation. Therefore, we expected to see productivity gains due to business investment that stepped up in 2017 and 2018.

The key looking ahead is to make sure that public policies, such as those relating to taxes, regulations, trade and government spending, do not undermine the vital risk taking involved with starting up, building and investing in businesses.

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

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