Soar­ing Out­put is Miss­ing From the Num­bers

The Economic Times - - Money - BARRY RITHOLTZ

You can see the com­puter age ev­ery­where but in the pro­duc­tiv­ity sta­tis­tics. — Robert Solow

US gov­ern­ment data on April 1 showed that the US gained 215,000 new jobs last month. Un­em­ploy­ment ticked up to 5% from 4.9%, as more peo­ple re­turned to the labour force. Wages in­creased 0.3% month to month, and are up 2.3% year over year. Pay­rolls ex­panded for the 70th con­sec­u­tive month, av­er­ag­ing 198,000 a month dur­ing that stretch. Since the Great Re­ces­sion ended, 14.5 mil­lion new pri­vate­sec­tor jobs have been added to the econ­omy.

Those big three data points — the un­em­ploy­ment rate, num­ber of new hires and wage gains — are what ev­ery­one fo­cuses on. The one data point you don’t hear much about is pro­duc­tiv­ity. Look­ing only at the Bureau of La­bor Sta­tis­tics data, you might imag­ine that the level of pro­duc­tiv­ity hasn’t im­proved much. This is cru­cial, be­cause pro­duc­tiv­ity is a big part of the eco­nomic-growth equa­tion.

How­ever, based on noth­ing more than my own per­sonal ex­pe­ri­ence, and nearly ev­ery­one else I have asked about this, some­thing quite dif­fer­ent is hap­pen­ing — pro­duc­tiv­ity is soar­ing. Yet, there’s noth­ing to be found in the of­fi­cial num­bers. To para­phrase Solow, pro­duc­tiv­ity gains are ev­ery­where ex­cept in the pro­duc­tiv­ity sta­tis­tics.

Think for a mo­ment about the tech­nol­ogy you use in your per­sonal and pro­fes­sional life; con­sider how much more you can do in a given span of time thanks to tech­nol­ogy; the in­te­gra­tion of mo­bile wire­less and in­for­ma­tion ser­vices, the In­ter­net, soft­ware and apps and what it all al­lows you to ac­com­plish each day com­pared with the re­cent past.

Iwa­gerthaty­ourper­son­al­ex­pe­ri­enceover­whelm­ingly­sug­gest­spro­duc­tiv­i­ty­gain­sa­reev­ery­where­despiteth­elackof hard­data.

An­a­lysts at the BLS looked at this in 2014. They noted in a re­port some rather in­trigu­ing data: em­ploy­ees “in the US busi­ness sec­tor worked vir­tu­ally the same num­ber of hours in 2013 as they had in 1998—ap­prox­i­mately 194 bil­lion la­bor hours . . . there was no growth at all in the num­ber of hours worked over this 15-year pe­riod, de­spite the fact that the U.S pop­u­la­tion gained over 40 mil­lion peo­ple dur­ing that time, and de­spite the fact that there were thou­sands of new busi­nesses es­tab­lished dur­ing that time.”

That 15-year pe­riod also saw a 42% in­crease in real out­put; Amer­i­can busi­nesses pro­duced $3.5 tril­lion more in goods and ser­vices (in real terms) in 2013 than in 1998.

As a na­tion, how can we have such a mas­sive in­crease in out­put with­out an large in­crease in pro­duc­tiv­ity? Tech­nol­ogy must be part of the an­swer; the other part prob­a­bly is a mea­sure­ment is­sue.

Rick Rieder, chief in­vest­ment of­fi­cer of global fixed in­come at Black­Rock, calls today’s slow pro­duc­tiv­ity growth “a sta­tis­ti­cal mi­rage.” He fur­ther ob­serves that “tra­di­tional eco­nomic met­rics sim­ply haven’t kept pace with fast-chang­ing tech­nolo­gies geared to­ward greater ef­fi­ciency at lower cost.”

Oth­ers at Black­Rock have looked at the pro­duc­tiv­ity slow­down, ex­plor­ing cycli­cal and struc­tural rea­sons for the “miss­ing” gains. Mea­sure­ment er­ror con­tin­ues to be the lead­ing cul­prit.

The way we cap­ture for­mal pro­duc­tiv­ity data hasn’t kept up with mod­ern ways of do­ing busi­ness. As a re­sult, I be­lieve econ­o­mists un­der­es­ti­mate pro­duc­tiv­ity in­creases. Think about it: Most of us walk around with more com­put­ing power in our pock­ets and hand bags than the Apollo as­tro­nauts had at their dis­posal on the lu­nar voy­ages. Smart­phones and re­lated tech­nol­ogy make ev­ery­one more pro­duc­tive. As US busi­nesses and con­sumers con­tinue to adopt new tech­nolo­gies at the fastest rate since the ad­vent of the tele­vi­sion, the re­sult is ever-in­creas­ing pro­duc­tiv­ity. In the app-econ­omy, pro­duc­tiv­ity gains are ev­ery­where — ex­cept in the of­fi­cial data. Let’s hope that changes soon. — Bloomberg

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