U.S. Productivity Rises, Finally

A new report from the government shows that U.S. labor productivity rose sharply during the third quarter of 2016. This is welcome news, long overdue.

According to the U.S. Bureau of Labor Statistics, Nonfarm business sector labor productivity increased at a 3.1-percent annual rate during 3Q16.

To show what a big deal that is, consider how productivity has declined dramatically in recent decdades - and all but flatlined since the Great Recession.

Labor productivity (or output per worker) has fallen from an average of 2.6% per year in 1999-2006 to 2.4% in 2007-2014.

However, Total Factor Productivity (TFP) growth-which combines the effects of improvement in efficiency and technology and innovation - has all but collapsed in recent years. It fell from an average of 1.3% in 1999-2006 to just 0.3% in 2007-2014.

The economy is growing at a lackluster rate, and the slow growth in productivity is a big reason why.

A report from The Conference Board said that productivity growth needs to be strengthened by as much as 60% in the next ten years to achieve the same growth levels as before the financial crisis.

Are We Finally on the Mend?

So, let\'s look at these third quarter number in that context. This jump - to a 3.1-percent annual rate - puts productivity growth on the right track to support higher overall growth in GDP.

The big question, however, remains: will this trend continue? Will we see productivity growth above 3% from now on?

Our economy will deliver the answers soon enough.