Productivity Measurement Analysis series – United States, Q2 2023 by Martin Fleming
The growing strength of the US economic expansion – as opposed to a generative AI miracle – boosted nonfarm productivity in the second quarter with a 3.7% outsized increase.
The improvement, on annualised basis from the first quarter, reversed six quarters of decline. A 2.4% output increase and a 1.3% decrease in hours worked resulted in the largest quarterly increase since the end of the 2020 pandemic-driven recession.
While generative AI and other machine learning capabilities offer the promise of long-term gain, it is much too early in the diffusion process to expect measurable benefit. Nonetheless, as the US economic expansion matures and labour markets more fully adjust in the post-pandemic period, stronger productivity gains can be expected. As job growth slows with open positions filling, productivity benefits will be realised.
The substantial productivity boost held the quarterly increase in unit labour cost to only 1.6% despite 5.5% increase in hourly compensation. On a year-over-year basis, a 1.3% productivity increase reversed five quarterly declines. However, the level of nonfarm productivity remains one percent below its late 2021 peak.
The manufacturing sector also benefited from substantial productivity improvement. A 4.0% second quarter increase from the prior quarter resulted from a 2.0% output increase and a 1.9% decline in hours worked. However, a very substantial 7.8% hourly compensation increase boosted unit labour costs by 3.6%. The challenge of attracting workers to the manufacturing sector remains.
The long-term trend, of course, was little changed by the strong second quarter improvement. Nonfarm business sector productivity growth has averaged 1.4% since 2010.