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Early cycle productivity boom underway

May 07, 2021

Median Annualized Changes in Nonfarm Business Productivity across the Business Cycle

Early cycle productivity boom underway

Nonfarm business productivity was stronger than expected in the first quarter, shooting higher by 5.4 percent, and is now up by an 11-year best 4.1 percent on an annual basis. It should come as little surprise that productivity is finally breaking out of a long slump, as this is the stage of the cycle in which it has historically advanced most rapidly due to the tendency for output to recover much more quickly than employment in the aftermath of recessions (consider that, even with the outsized gains of late, nonfarm payrolls are still 5.5 percent south of their pre-COVID peak while real GDP is off by just 0.9 percent). It is also no coincidence that inflation has generally remained in check during these periods. There is often a lingering output gap early in expansions, of course, but productivity plays a role here, as well, given its influence on unit labor costs. This should be taken as a reminder that not all the leading indicators of near-term inflation, as extreme as some have been in recent months, are pointing in the same direction.

Jobless claims plunge again

Initial unemployment claims fell by 92,000 last week to 498,000, the lowest level since last March. The pace of improvement in the labor market is clearly picking up steam, as claims are now falling at their fastest pace on a month-to-month basis since early September. It is a safe bet that the BLS will report another blowout increase in jobs on Friday.

Daily Trivia

What company’s name and logo both reflect its San Francisco origins, the latter incorporating electromagnetic waves in the form of the Golden Gate Bridge?

Previous Question

Kindle analysis shows that the average reader made it through only 26 of the 700 pages of what 2014 best seller?


Capital in the Twenty-First Century


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