Americans haven’t been this productive in years, but does it matter?
Labor data continues to paint a rosy picture of the U.S. economy.
Last week, jobless claims declined by 13,000 to 216,000, the lowest since February, according to the Labor Department. The number stunned economists who were expecting applications to rise by 5,000.
On top of that, the number of people continuing to receive jobless benefits fell by 40,000 to 1.679 million in the week ending Aug. 26.
The good news didn’t stop there.
A separate Labor Department report showed that worker productivity increased at an annual rate of 3.5% in the second quarter—the highest in almost three years.
After the first quarter's 1.2% surprise drop, such a rebound is giving economists a glimmer of hope.
Solving the productivity puzzle
The past three years have been rough for the average worker.
Lockdowns, layoffs, remote work—for many, it has felt like only a semi-return to normal since the WHO declared an end to the pandemic.
Somehow, through it all, American productivity surged during the worst of the pandemic.
Then it stopped and reversed.
Before the rebound in the second quarter, U.S. productivity had declined for five consecutive quarters on a year-over-year basis, according to EY-Parthenon, the strategy arm of Big Four accounting firm EY.
In fact, it was the worst stretch in 75 years.
While experts can’t agree on why productivity is declining, it probably has something to do with workforce shortages, inflation, debt, and the cost of transitioning to new energy sources, according to global consulting firm McKinsey.
A December 2022 study by payroll processor Ceridean found that financial stress among North Americans was the highest since 2008. Financial worry costs employers $664 billion in lost productivity.
McKinsey estimates that regaining historical rates of productivity would add $10 trillion to the U.S. economy.
EY-Parthenon thinks productivity is the key to beating inflation and solving many issues plaguing our current economy.
"A productivity rebound is the key to many of our current issues as it would help lift supply & reduce inflationary pressures," wrote Gregory Daco, the chief economist at EY-Parthenon.
“The difficulty is that there is no magic productivity wand.”