Why It Matters: Productivity is key to prosperity.
A highly productive economy generally means businesses and workers are operating efficiently, making more money in fewer hours. In the second quarter, production was up 3.3 percent, while hours worked rose 1 percent.
On a less technical level, productivity is best explained by the old axiom of “doing more with less” or the folksy virtue of “getting the biggest bang for your buck.”
Economists tend to sigh with relief when they see productivity gains because it offers a potential “win-win” for workers, customers and business owners: If businesses can make more money in fewer work hours, then — according to basic economic logic — they can presumably make more dollars per hour, while also reinvesting and giving workers raises, without sacrificing profits.
Being able to make more with less (or with the same amount of labor and machinery) also means businesses may not feel as much pressure to set higher prices to push profits. That, too, is welcome news after a yearslong bout of inflation.
Facts to Keep in Mind: Measuring productivity is tricky.
Productivity, at a basic level, is calculated as a simple ratio: the total amount of output an economy produces per hour worked by its labor force. But the output side of the equation is adjusted for inflation on a quarterly basis. That can cause volatility, in both directions.
Did the U.S. economy, and its workers, suddenly become deeply unproductive when oil prices jumped, causing energy inflation to surge, after war broke out in Europe? No, but the impact on productivity data in those quarters was deeply negative.
On the other hand, it is highly unlikely that productivity growth in the second quarter of 2020 amid the pandemic was truly an eye-popping 6.8 percent on a yearly basis, as a face-value reading of the data back then had suggested.
What We Don’t Know: How much difference will A.I. make?
For now, most analysts say artificial intelligence is having only a nascent influence on overall productivity. A recent report from the Federal Reserve suggests that low unemployment, traditional automation, falling inflation and growing investment have more to do with the brightening data.
Skanda Amarnath, the executive director of Employ America, a think tank that tracks the U.S. labor market and economic data, said gains from A.I.-related tech hardware were “still not running at anything close to boom or mania levels” but noted that “it’s starting to pick up.”
What’s Next: The jobs report for July.
On Friday, the Bureau of Labor Statistics will release its monthly jobs report, which should shed more light on the state of the labor market and the U.S. economy’s resilience.