Productivity is a vague concept for most people. Working harder and working longer are tangible realities for many American households. But more work doesn’t mean a more productive economy.
Quarterly productivity data is often overlooked and quickly forgotten. It is overshadowed by monthly employment statistics; quarterly corporate earnings and just about any other number in the flood of economic intel investors are bombarded with. That’s understandable because productivity is quiet, yet it is the power that’s missing from the economy.
Working longer does not led to a more productive economy. It doesn’t necessarily even mean working harder. Productivity, as measured by economists, means working smarter. It’s getting more thanks to technology, efficiencies and better working conditions. Better productivity allows companies to produce more without raising costs. They can reinvest in their companies. It also can lead to more hiring, better pay and a generally rising economic cycle.
Instead, productivity has been falling over the past six months. The economy is getting less efficient. Revised data on the first quarter will be released Tuesday without much fanfare. That’s too bad. Productivity is fuel for profits, jobs and the economy.
Companies have not been investing in their businesses to grow them. There is a perceived (if not real) skills gap in the American workforce. Those hold productivity back. Meantime, the “gig” economy with temporary, independent workers isn’t necessarily reflected in the productivity data. No doubt, Uber drivers or Airbnb landlords, for instance, have made their unused cars and unoccupied rooms more productive. Perhaps that’s masking efficiencies that help make the economy more productive.
In April, two former chairmen of the Federal Reserve, Alan Greenspan and Ben Bernanke, pointed to productivity as “the major problem” for the global economy. For long-term investors, that problem deserves attention.
Financial journalist Tom Hudson hosts "The Sunshine Economy" on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.