Monday, August 15, 2016

Falling Productivity and the Sad State of Our Economy

On August 9th, it was reported that, for the first time since 1979, U.S. worker productivity fell for three quarters in a row.  The problem with this, is that without increasing productivity, wages and the economy will stagnate.

This is easily proven by the recent economic growth report in which the GDP in the second quarter grew at an abysmal rate of 1.2%.  And, the fourth quarter of 2015 was downgraded from 1.4% to 0.9%.  Also, the first quarter was downgraded from 1.1% to just 0.8%.  Therefore we have had 3 straight quarters with an average of less than 1%.  Well below the historical average of 3.79%.

But, the fact that productivity is weak should be no surprise when you look at this graph of the "Business Inventory to Sales Ratio" (also known as Business Inventory Turnover Ratio):

Click on Image to Enlarge
What this graph represents, is how efficient companies are at selling their inventory of products.  Simply, under Obama, decades of improving efficiency are being wiped out because sales are slumping.  Obviously then, it is only logical that falling productivity would follow, and in fact, so would declines in economic growth; as we have seen in the last 9 months.

Going forward, there is no reason to believe that there won't be another quarter of falling productivity. Something that hasn't been seen since the Great Depression.


U.S. Productivity Fell for Third Straight Quarter:

Was the Weak 2nd Quarter Economic Growth, Even Weaker?:

Graph Source:

No comments: