We’ve been stuck in an economic funk for the past three years now. Call it a downturn, a recession, depression, or what have you. Whatever you call it, there’s no denying that this has been a tough time for a lot of businesses and people.
One rather misleading economic indicator continues to rise: productivity. Business productivity is at an all-time high. Good news? Not really. This just means that employees are doing a whole lot more work. In addition, they’re doing more work for less money. Basically, businesses are just like you and me: doing a lot more work with a lot fewer resources.
Here’s the latest (third quarter 2011) U.S. productivity numbers from the U.S. Bureau of Labor Statistics:
Nonfarm business sector labor productivity increased at a 2.3 percent annual rate during the third quarter of 2011, the U.S. Bureau of Labor Statistics reported today, with output and hours worked rising 3.2 percent and 0.8 percent, respectively. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the third quarter of 2010 to the third quarter of 2011, output increased 2.4 percent as hours rose 1.4 percent, resulting in a 0.9 percent increase in productivity.
Manufacturing productivity surged even higher, particularly in the durable goods sector:
Manufacturing sector productivity grew 5.0 percent in the third quarter of 2011, as output rose 4.6 percent and hours decreased 0.4 percent. Productivity jumped 9.5 percent in the durable goods sector and edged up 0.1 percent in the nondurable goods sector. From the third quarter of 2010 to the third quarter of 2011, manufacturing sector productivity increased 2.9 percent. Unit labor costs in manufacturing fell 5.1 percent in the third quarter of 2011 and decreased 1.9 percent over the last four quarters.
High productivity is OK in the short-term. It helps businesses survive these economic downturns. However, artificially high levels of productivity in the long run start to have a serious impact on quality, customer service, and profits. There’s just so much work you can wring out of your employees before they start to wear out, ignore procedures, cut corners, and make sacrifices to meet deadlines. Businesses save money in the short-term but are soon faced with higher employee turnover, increased training costs, higher product returns, increased customer dissatisfaction, and higher inventory costs.
Just one example of this is in the latest Consumer Reports Reliability Survey. It shows that after steadily rising, U.S. auto manufacturers’ quality has started to decline again. You can read more about it in a recent New York Times article here.
I wish there were a magic bullet for our economy; there isn’t. Until our politicians start caring more about their constituents than getting re-elected, we’re going to have to continue to make do.
