Monday, June 6, 2016

Keep An Eye On This Economatrix Number

Although you'll have a hard time finding this information without deliberately searching for it, US economic productivity dropped for the second quarter in a row, the biggest drop in over 20 years.
The measure of employee output per hour decreased at a 1.9 percent annualized rate after a revised 2.1 percent drop in the prior three months, a Labor Department report showed Wednesday in Washington. The decline on average over the past two quarters was the biggest since the first six months of 1993. Expenses per worker increased more than projected at the start of the year.
Why should you care?  Long before I retired, even thick-headed old engineer me realized that the only absolute imperative in industry is to always Get More Done With Less.  Again, why care?  The only way that advanced economies, like ours and most of the western world, can compete against the much lower labor costs in the rest of the world is by being more productive.  As Bill Bonner puts it:
The thing that separates rich societies from poor societies is productivity. It measures how much output you can get from each unit of input – mainly labor and capital.

In the richer societies, a workman’s time is more valuable because he can produce more from each hour of labor. Since time is limited, the only hope of making material progress is to increase productivity.

So, it is no small matter when productivity growth comes to an end. Not to be alarmist about it, but if this trend persists, as we pointed out on Friday, it means the end of our civilization as we know it. And maybe even before the Fed completes its rate hikes!
As proponents of the Information Theory of Money say, all our lives we've been told "time is money" but that's backwards: money is time.  Time is strictly limited, the most valuable "possession" each of us ever has is our time here.  The only way to build more wealth is to get more done in less time.

At the very best, this is yet another sign of another recession getting started.  Janet Yellen gave another of her tepid, 100% content-free speeches today.  The economy is improving, but no rate hikes.  We're keeping an eye on it.  We're data driven.  Yada yada yada.  The economy has been improving for so long it ought it be freakin' perfection by now, right?

Back to Bill for the closeout.
Most economists (and politicians) have blamed world trade for stagnant U.S. wages. The median wage in China is only $8 a day. No wonder U.S. factory hands can’t catch a break; who can compete with that? 

But Germans compete with the Chinese, too. And their wages have gone up! In real terms, after adjusting for inflation, wages in France and Germany have been going up at a 0.7% rate for the past 15-20 years.

Throughout most of the emerging market economies, wages went up… even though they all had to compete with the Chinese.
So what gives?  It's the free money coming from Fed - nothing else distorts the economy as badly.  There's nothing more expensive than free money.  The Germans don't have to put up with our Fed, so their wages actually go up.  So keep an eye on the quarterly productivity numbers.  This would be a really bad trend to have continue.

(I was going to put a stock photo here of some sort of factory, or office workers, but when I started looking at them, I started having bad flashbacks to when I was still working.  I had to quit.  Too many pictures of Mandatorily Interracial groups of workers, just like every stupid training class I had to take for the last 40 years.)


8 comments:

  1. Did productivity go down because of all the parasitic drag on workers.... social compliance training, more time spent reporting earned value than earning value, govt compliance reporting, etc.?

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    1. I didn't see anything on that, but you have to figure it could be. Those government mandates suck up time that has to show up sooner or later.

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  2. As an engineer I am sure you understand the math behind regression to the mean. That is what we are facing. It is going to happen and all of the money, borrowing, printing and taxing pumped into the economy over the last 20 years and more specifically the last 7 1/2 years will only make that inevitable regression more severe. If we had simply allowed these economic events to play out unimpeded by Keynesian economics and Fed and political meddling we would have had a recession, perhaps a serious recession, that would have lasted a couple of years and shaken out the bad investments and investors allowing the economy and markets to actually recover. Instead we have spent trillions to prop it up making that inevitable day when the music stops a tragedy. Look to Venezuela and gird your loins.

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    1. Add in to that "regression to the mean" idea that we have leaders of both the Federal Reserve and the Fed.gov who think they don't need to try to learn from things because they already know everything! They have the answers to everything already. If Venezuela collapses, that's only because they, personally, were not in charge.

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  3. What if it is simpler than that. The economy is stalled and raises and bonuses are not there. Employees are figuring this out and adjusting their output to match the rewards. Why work an extra 10 hours a week if the company puts negative value on your time?

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    1. That. I am 62 and nearing retirement. That extra 10 hours a week, physically costs me a lot more today than it did 20 years ago, and without the extra incentives that were so common back then, my attitude today is why bother. My work product is still up to the same standards it was back then, but I avoid "going the extra mile" because it's simply not worth it.

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  4. I wonder what impact millennials are having. One hears that they tend to need to be coddled and praised for doing even the most elemental parts of their jobs. I'd think that would decrease both their and their bosses' productivity.


    Weetabix

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    1. Anon 1155 and 1414, great questions, but the little I read doesn't speculate in any way. As an engineer, the last millennials I worked with were quite good: dove in to the job and really went above and beyond what you'd expect. On the other hand, engineers are kinda 6 sigma anyway - as in "nowhere near normal".

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