One of the largely overlooked implications of Friday's weak job report is that it likely means that we will see a strong rebound in productivity growth for the second quarter. GDP growth is likely to bounce back from the first quarter's weak 1.2 percent number, most likely coming in between 3.0 percent to 4.0 percent. With the rate of growth of hours worked likely less than 1.0 percent, we will be looking at productivity growth in the 2.0 percent to 3.0 percent range for the quarter.
Here are three quick thoughts:
1) Quarterly productivity data are hugely erratic, so most likely a rebound in a single quarter means nothing. It is entirely possible that the third quarter will put us back on our weak 1.0 percent productivity growth path.
2) I am betting that productivity growth will pick up as the labor market tightens further (or perhaps I should say "if" the labor market tightens further), as workers move from low-paying, low-productivity jobs (e.g. greeters at Walmart and the midnight shift at a convenience store) into higher paying, high-productivity jobs.
3) If productivity growth does pick up, it will be good for workers. We had 3.0 percent annual productivity growth from 1947 to 1973 and again from 1995 to 2005. In the first period, we had low unemployment and broadly shared wage gains. The same was true in the years from 1996 to 2001, until the collapse of the stock bubble threw us into a recession.
Strong productivity growth coupled with sound economic policy (e.g. the Fed not raising interest rates to keep people from getting jobs) creates the basis for rapidly improving standards of living. We need not worry about it leading to mass unemployment if the folks in charge of economic policy have a clue.