Problems with productivity

first_imgLast week, it was reported that U.S. labor productivity, as measured by the amount of gross domestic product (GDP) produced by one hour of labor, declined 0.6% in the first three months of 2017. The decline was more than expected. A problem that Ms. Yellen, along with most Federal Reserve (Fed) governors and presidents, view with strong concern, is getting worse, not better. Moreover, the Fed, along with many economists and economic policy makers, admit that they really don’t know how to fix the problem. Yet in the face of this problem, as noted in their statement on monetary policy Wednesday, the Federal Open Market Committee (FOMC) was quite sanguine with the prospects for the economy going forward, more or less dismissing the rather soft first-quarter data. There seems to be a disconnect here between the Fed’s concern over productivity, which Ms. Yellen has gone so far in the past as to call “miserable,” their outlook for the economy, and their desire to tighten monetary policy as early as next June.One of the potential reasons that labor productivity remains dismal in the face of increasing employment during this seven-year economic expansion could be that the quality of jobs produced has been dominated by relatively low productivity retail jobs. Nevertheless, during this long, if not spectacular, expansion, manufacturing of durable goods has been growing in sectors such as autos. Additionally, the first half of 2017 experienced a rebound in energy and energy jobs as well.Perhaps the Fed believes that there will be a continued improvement in the productive quality of jobs that will, in relatively quick time, give us the productivity and economic growth befitting an economy that is at or near full employment. However, in my opinion, for the Fed to believe this, they must be discounting the problems we are beginning to see crop up in auto production and energy as temporal. Are they temporal? continue reading » 7SHARESShareShareSharePrintMailGooglePinterestDiggRedditStumbleuponDeliciousBufferTumblrlast_img