The U.S. economy has been humming lately, with output and job growth accelerating, but analysts tell USA Today future gains may be limited by a creaky engine: slow productivity growth.
Sluggish productivity already has narrowed the fourth-quarter earnings reported by large corporations in recent weeks and is likely to continue to constrain wage increases and economic growth.
“It’s a major problem,” says Robert Atkinson, president of the Information Technology and Innovation Foundation.
Productivity, or output per labor hour, fell at a 1.8% annual rate in the fourth quarter and was up just 0.8% in 2014, the Labor Department reported earlier this month. That’s well below the 2.3% average from 1947 to 2014.
Productivity hasn’t risen by more than 1% a year since growing about 3.3% in both 2009 and 2010. During that stretch, economic output rebounded after the Great Recession, but wary employers hired sparingly and squeezed more from existing workers.
In the short term, low productivity growth is a good thing for the labor market. With the production potential of each employee limited, businesses must hire more workers to meet growing demand. Monthly job gains averaged 260,000 in 2014, the strongest showing since 1999.
But anemic productivity squeezes the profit margins of employers as their earnings fail to keep pace with rising labor costs. Fourth-quarter operating margins for Standard & Poor’s 500 companies are running at 8.9%, the lowest in two years, says Howard Silverblatt, S&P senior index analyst. Read the full story.
