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There was an interesting blog post over at the Macroblog (Atlanta Fed) regarding productivity. John Robertson and Pedro Silos highlight the contributions to GDP growth from various factors, including productivity and employment. One of their findings:

As this chart shows, relatively high labor productivity growth during a recession is not a phenomenon isolated to the 2007–09 and 2001 recessions (for present purposes, the end of the most recent recession is identified with the trough in GDP in the second quarter of 2009). All recessions from WWII through 1970 also featured sizable growth in labor productivity.

The article focuses on the contribution of productivity gains to GDP growth during a recession and the early stages of the recovery. The authors do not comment on, however, a very interesting bit of their story: the “hourless” recovery.

Lockhart speaks of this curtly in his speech - the focus of the macroblog article:

Current data on the use of part-time workers suggest that businesses have some scope to increase hours without hiring new full-time employees.

The precipitous drop in hours worked has differentiated this labor downturn from previous cycles (papers

here and here). According to the BLS Q1 2010 productivity report, the recovery of the 2007-2009 recession has so far been “hourless”, which is consistent with the previous two cycles.

Click images to enlarge

The chart illustrates the contributions to output growth from hours and productivity for the the first three quarters of recovery spanning the last six recessions. Note: the current recession has not officially been dated as having ended, but June or July 2009 is the "whisper" talk for now. I will simply call Q3 2009 as the onset of the recovery, since GDP grew that quarter.

The "hourless recovery" is underway: a cumulative 3.3% of output has been generated over the last three quarters (using the BLS productivity report) via a 0.9% drop in aggregate hours. I argued last year that adding back hours cannot generate sufficient output growth for sustainable "recovery"; however, productivity growth has been strong enough that the productive hours cycle has not even begun.

It’s likely that the large service sector is the drag that is driving the “hourless” recovery because manufacturing hours are red hot.

(The weekly hours series are indexed to 100 for comparison.)

The chart illustrates average weekly hours of production and nonsupervisory workers in manufacturing and private industry payroll. Manufacturing weekly hours, 41.5 hours per week in May 2010, recovered 5% off the low of 39.4 hours in March 2009. Furthermore, May 2010 set a ten year record, breaking past levels not seen since July 2000 (not shown in chart but you can see it here). In contrast, total private weekly hours remain below pre-recession levels, just 1.5% off of the June 2009 low, 33.0 hours.

The BLS breaks down average weekly hours for all workers by industry since 2006. The service sector is the lion's share of the private payroll (~85%). Of the service sector payroll, 68% remains short of pre-recession weekly hours worked: trade, transportation, and utilities, professional and business services, and education and health services.

Adding hours still won’t provide a large growth impetus, as I argued here; however, the service industry has yet to see the burst in hours like in manufacturing. As such, I agree with the overall conclusions of the Robertson and Silos article:

Hence, it will probably take awhile to see how President Lockhart's forecast of continued modest employment growth pans out.

Source: The Hourless Recovery Is Underway