Thursday we learned that productivity fell at a 2% annual rate in the fourth quarter of last year. From a peak of 5.6% in 2009, it is now up only 0.6% in the past year. This fits with the slowdown in growth in the past two years - companies have squeezed about as much out of existing resources as they can. Without a faster pace of hiring and more investment in productivity-enhancing equipment, technology, and training, the economy's growth is going to be constrained to the current growth rate in jobs plus productivity gains of maybe 1% a year, and that in turn suggests we could see only 2-2.5% annual real growth going forward.
Looked at another way, the decline in productivity means that unit labor costs are rising and could now begin to feed through to higher prices.