Stagnation Gone and US Productivity Growing
A quick and brief review of the economic trends and the third quarter. My only opinion on this recital being Supply Chain returning to a norm should be given more credit. Its manipulation was definitely one of the major influences on inflation.
Beyond the standard metrics of industrial investment, it is also worth noting how consumer behavior has adapted alongside this stabilization. As disposable income becomes slightly more predictable with cooling inflation, we are seeing a steady reallocation of discretionary spending toward decentralized digital ecosystems. Retail consumers are actively diversifying their entertainment and financial habits online, splitting their leisure budgets between niche streaming subscriptions, direct-to-creator platforms, and the best bitcoin betting sites to engage with international sports markets. This ongoing shift in how digital dollars circulate forms a subtle but real component of the broader economic resilience that the following analysis outlines.
Breaking Out of Stagnation: US Productivity Growth Is Clearly Beating Pre-Pandemic Trends Right Now
by Skanda Amarnath
Employ America
After taking into account data revisions and the Q3 GDP release, productivity growth is running stronger in the post-pandemic period, at about a 2% annualized pace. This stands in contrast to the sluggish ~1.4% pace observed in the pre-pandemic period. We’ve been productivity optimists for some time now; the downsides of 2022 were never as fatal as they seemed and there was underrated upside earlier last year that has now realized. The combination of:
(1) full employment,
(2) robust industrial fixed investment, and
(3) healing supply chains is delivering impressive productivity growth.
Prior to the pandemic, few forecasters or commentators thought this kind of breakout from stagnation could feasibly sustain, but the past few years suggest scope for greater optimism.
Summary
As of 2024Q3, post-pandemic productivity growth appears to be running at a 2% annualized pace, markedly higher than the ~1.4% growth rate observed prior to the pandemic. Productivity is volatile and we wouldn’t be surprised to see some hiccups in the coming two quarters due to one-off factors, but even so, the performance over the post-pandemic period has sustained long enough for economists to start taking more seriously.
If we just looked at the most recent productivity release from September 2024, we would only see a 1.6% annualized growth rate in the post-pandemic period. However, that data release misses important facts that will only be fully accounted for in March 2025. These facts add an additional 0.3-0.4% to the annualized rate of post-pandemic productivity growth.
- In 2024Q3: Nonfarm business output grew at a 3.5% annualized pace even as hours worked grew at a 0.2% annualized pace.
- This implies an impressive 3.2% growth rate in productivity on an annualized basis in Q3. We should see something close to this estimate next week.
- Long-term GDP revisions last month added an additional 1.3% to post-pandemic nonfarm business output. These revisions should be incorporated next week.
- The preliminary benchmark employment revisions for March 2023 to March 2024 suggest hours worked in the post-pandemic period was 0.5% lower. These revisions will be incorporated in March next year.
In our view, this outperformance can be chalked up to three facts:
- Full employment conditions—in which more workers have already been hired and trained up with relevant experience—promote greater expansion of real output for a lower level of growth in hours worked.
- Public policy supports for fixed investment has allowed it to run at the pre-pandemic trend despite headwinds from sectors sensitive to higher interest rates. Both direct public investment efforts and certain tax provisions have helped crowd-in private fixed investment and keep it resilient.
- Supply chain healing—as critical sectors have de-bottlenecked and commodity prices have largely stabilized—has meant that a given dollar of consumer spending is less inflationary now than it was 2-3 years ago, and is now more likely to support additional real output instead.