Wednesday, February 02, 2011

The Amazing Gains in Worker Productivity = Record Output in Q4 2010 With 7 Million Fewer Workers

I reported last week that real GDP finally increased above its pre-recession level in the fourth quarter of 2010, and the $13.38 trillion of real GDP (2005 dollars) was the highest-ever quarterly output in U.S. history, slightly higher than the previous record of $13.36 trillion in the fourth quarter of 2007 (see top chart above).

But here's what's really amazing and is illustrated in the bottom chart: The U.S. produced slightly more output in Q4 2010 (by 0.14%) than in Q4 2007 when the recession started, but with 7.2 million fewer workers (almost 5%)!  Read more here at The Enterprise Blog


At 2/02/2011 9:10 AM, Blogger morganovich said...

of course, an alternate explanation is that the GDP deflator that was use to calculate real GDP was too low and that this is inflation, not a productivity miracle.

i have still not heard a good explanation as to why every other developed economy in the world was seeing inflation go up in 2010 while the US reported sharp declines in the face of soaring food, commodity, and healthcare costs.

At 2/02/2011 9:17 AM, Blogger Jason said...

Morganovich, I think a couple million protesting Egyptians would agree with you.

At 2/02/2011 9:38 AM, Blogger bix1951 said...

productivity or efficiency
consider what is being produced
the nature of our economy is to have many unproductive jobs and therefore unproductive workers working for the sake of work
government regulations create jobs by requiring inefficient use of resources
one size fits all regulations
In Los Angeles the apartment inspectors came around and demanded expensive repairs on units scheduled for demolition. How efficient is that?

At 2/02/2011 9:51 AM, Blogger McKibbinUSA said...

Regretfully, the gains in US worker productivity have not translated into new investment and employment, which may very well be the essence of the problem with employment in the US, today -- consider that the US employment to population ratio has been in sharp decline since 2000 -- more at:

The declining employment ratio may also provide a leading indicator of civil unrest as we are seeing in Egypt, Tunisia, Jordan, Syria, and other hotspot in the world in recent months -- more at:

Productivity without concomitant gains in employment is central to our still emerging macroeconomic challenges, globally.

Thank you for the opportunity to comment...

At 2/02/2011 10:04 AM, Blogger morganovich said...

dr will-

this "productivity" is also not translating into personal income gains as one would expect which leads me to further doubt the accuracy of the claimed increase.

At 2/02/2011 11:07 AM, Blogger Buddy R Pacifico said...

Two million of those fewer workers are directly related to Construction; BLS Source Data. One possible part of the dramatic productivity gains may be that Construction has been much less a part of the economy the last three years. My first person knowledge, of both construction and manufacturing, can assure that it is much harder to control labor costs in construction then manufacturing.

At 2/02/2011 1:50 PM, Blogger Benjamin Cole said...

Productivity in the private sector is a wonderful attribute of the free market system--and the US is more free market than other nations, and our borders are wide open for labor, capital, goods and services. That is why we have no inflation, possibly deflation, and will have very little inflation going forward. That is why we are different from Euro nations, or Japan.

If we could move more of our economy into the private sector--by ramping down the USDA, VA, Department of Defense, HUD and Labor for example, we would experience even greater growth.

Think about it--private goods and services just get better and cheaper. Military goods and services just get more expensive.

Private vs. ossified federal bureaucracy--the private sector will always prevail.

Inflation is dead for several years. Morgan should know that many serious economists believe the CPI overstates inflation.
Saying you do not believe the CPI or the GDP deflator moves you towards "faith-based" economic analysis.

We don't have general inflation readings as there isn't any. Housing is cheaper than in decades (to buy). Phones are cheaper. Cameras can take 1000 digital pics, no development fees.
Hamburgers are $1 at Jack in the Box. What inflation?

Oil is set on the NYMEX, and is a cartelized market. Oil can do anything, and not reflect US monetary policy or general prices here. Wheat is wheat. The Chinese are buying gold, they are nuts for gold, they have disposable income. Again, US monetary policy takes a back seat.

Bernanke is calling the shots almost right; he is probabloy a little too timid. QE2 could be much bigger--but a long, long bull market has been set up.

Habe you looked at corporate profits lately? How can you be gloomypants when you look at corporate profits?

At 2/02/2011 2:31 PM, Blogger morganovich said...


so, the serious economist know that CPI is understating inflation. the political hacks you continually cite don't count.

even so, why should the GDP deflator show 75% less inflation than even CPI and 90% less than the billion price project from MIT?

you have got to be kidding me benji.

At 2/02/2011 2:42 PM, Blogger Benjamin Cole said...


Okay, we disagree on inflation.

But how about corporate profits? They are to the moon already, in the early part of a recovery.

That doesn't strike you as a very positive signal?

At 2/02/2011 2:59 PM, Blogger morganovich said...

"Habe you looked at corporate profits lately? How can you be gloomypants when you look at corporate profits?"

this comment is nonsensical even for you.

first off, inflation makes corp profits look bigger, so your whole argument is just more bubble baby thinking.

second, corporate earnings are barely back to 2007 levels despite about 20% inflation since then if you use an arithmetic CPI, so i don't really see how 20% below 3 years ago in real terms is something to crow about (though it can certainly drive nominal appreciation) especially when the SPX is still down 13% nominally from 2007 and probably more like 30% in inflation adjusted terms.

finally, i am anything but gloomy.

my fund is having its best years ever. i just think this economy is being overstated and that this monetary policy is reprehensibly reckless and doing real damage to the US. i'd hate to be running a manufacturing or service business in this, but it's Christmas everyday if you are an asset manager. the volatility and the bubbles create the opportunity for outsized profits.

i am a HUGE beneficiary of this stupidity, but that does not mean that i think it's sound policy.

unlike me, the country as a whole needs real growth to see their standard of living increase.

At 2/02/2011 3:07 PM, Blogger Benjamin Cole said...


I salute your patriotism.

Still, corporate profits are surging, and it is early in the recovery--IBM reported record profits, and they are a service economy. I run a furniture cabinet co., and orders are picking up.
That's what I need--orders.

Demand, that is the bottom line. Demand--Bernanke has it right.

I am glad you are investing successfully.

Other than gold, where are the asset bubbles?

At 2/02/2011 3:26 PM, Blogger Eric H said...

Food stamp enrollment is up 14% since the "end of the recession" in late 2009.

As for inflation-proof burgers (or any other food the CPI purposefully ignores), Benji have you happened to notice the physical size/weight of those $1 burgers? Can't get a 1/4-pounder at that price any more. The amount of beef has deflated.

I guess if you are JPM, Wells Fargo, etc. getting a cut on every EBT transaction, that's good news.

At 2/02/2011 3:38 PM, Blogger Benjamin Cole said...


Dr Perry has run numerous charts showing food as less and less of a typical family's budget.

The $1 burger, or the 39 cent taco, is not fine fare. Still, I bought 10 tacos for $3.90 a tax the other day. Enough for dinner and breakfast.

Did ou cry about deflation when you bought a used book online (Amazon) for $4, and then didn't even have to burn time/gasoline to get to the bookstore?

I get nationwide calling for $50 a month,unlimited, from my cell phone, and int'l calling, through a calling card, for 1.2 cents per minute. Where is the crying about deflation?

At 2/02/2011 3:48 PM, Blogger Buddy R Pacifico said...

Benji, et al.,

Here is a comprehensive list of commodities and the percent of price change for the last 12 months. List and percentage change.

Is there any doubt that price increases are not coming?

At 2/02/2011 4:24 PM, Blogger Benjamin Cole said...

Commodities were depressed in the crash--they reflated. That is not general inflation.

BTW, here is a nice tidbit about the Afghanie government executing Christians. We spent $3 trillion in Iraqistan, and Obama keeps spending money to support a corrupt narco-state in Afghanie--that executes Christians.

KABUL—The U.S. government and some international Christian organizations are pressing Afghanistan to release two men who converted to Christianity, were arrested on apostasy charges, and could face the death penalty if convicted.
The U.S. has called on Afghan authorities to respect the Universal Declaration of Human Rights, a document endorsed by Afghanistan that upholds freedom of religion. "We continue to call for their release, and frequently raise this issue with the highest levels of the government of Afghanistan, expressing our strong concern," said Caitlin Hayden, spokeswoman of the U.S. Embassy in Kabul.
Afghan officials have been unapologetic. "The sentence for a convert is death and there is no exception," said Jamal Khan, chief of staff at the Ministry of Justice.

Maybe Ron Paul would make a good president.

At 2/02/2011 4:42 PM, Blogger morganovich said...


"Commodities were depressed in the crash--they reflated. That is not general inflation."

so was GDP, does that mean that there was no growth?

your argument here makes zero sense.

annual inflation = change in price over 1 year. what happened in prior years is irrelevant.

and, fwiw, the CI (constant commodity index) is currently 659, 7% above the 2008 high during the oil spike and up 81% over the last 5 years (a compound rate of 12.6% per year) and up over 200% (11.6% CAGR) over the last 10 years.

you still think these is no inflation there?

At 2/02/2011 5:03 PM, Blogger Benjamin Cole said...


Yes, there is some inflation in commodities (although if yu go back to 1967, less than the general CPI).

There is strong demand, Chindia.

I expect these higher commodities prices will lead to gluts in the future.

The question is, are we enjoying moderate inflation now? The answer is no--we are still flatlining, or in mild deflation in the USA. In Japan, they are flat out deflating.

That is the real danger to be avoided--Japanitis.

At 2/02/2011 5:32 PM, Anonymous Anonymous said...

Besides the inflation issue, as I noted here recently, we have the population increase issue. Tracking GDP over time is not very useful when the population differs. From 2005 to 2010 our population grew 4.4%. Our GDP per person at Q4 2010 is therefore 4.3% less than it was at Q4 2005. That is part of the explanation of why the full "recovery" of the GDP is not associated with a full recovery of our buying power.

I grow tired of agencies and economists posting misleading time-based statistics that don't correct for obviously relevant factors such as population and demographic changes.

At 2/02/2011 6:11 PM, Blogger PeakTrader said...

The U.S. suddenly became more productive starting in 1995. A higher level of productivity is disinflationary:

Governor Randall S. Kroszner
At The Forecasters Club of New York, New York, New York
September 27, 2006

"A great success story for the American economy has been the resurgence of productivity growth that began around 1995.

From 1973 to 1995, labor productivity in the nonfarm business sector increased at an annual rate of 1-1/2 percent. (Labor productivity is defined in terms of output per hour of work in the economy.)

In contrast, from 1995 to 2000, productivity accelerated to a 2-1/2 percent rate.

Perhaps even more remarkably, despite a recession, the fall of the dot-com market, a broad stock market correction, terrorism, and corporate governance scandals, productivity has accelerated even further since 2000.

Despite some slowing in the past few quarters, productivity in the nonfarm business sector has risen at an average annual rate of about 3 percent over the past 5-1/2 years."

At 2/02/2011 7:57 PM, Blogger Benjamin Cole said...

Peak Trader--

Right you are. I think the cell phone and Internet are boosting output.

I can remember waiting for driver to come back to the shop that we could dispatch him somewhere else. Those days are over.

Deflation is a very dangerous condition to be avoided--see Japan.

See also Milton Friedman's advice to Japan: Print lots of money (business cycles be damned) here:

At 2/02/2011 9:09 PM, Blogger Hydra said...

Pretty soon we can all stay home.

At 2/02/2011 9:15 PM, Blogger Hydra said...

I know the theory. What I see in practice is perfectly good stuff being trashed because I cannot be fixed. Where is the stradivarius cell phone that sounds good 200 years later?

At 2/02/2011 9:15 PM, Blogger aorod said...

There is no inflation because no one has any money to buy anything. You can't spend more when taxes are going up and education and health care are so expensive. Most money is going to student/parent loans or paying off past debt.

At 2/02/2011 9:19 PM, Blogger aorod said...

Less workers, higher prices. How long can it continue...

At 2/02/2011 9:55 PM, Blogger Hydra said...


I have very little in loans, and no student loans. Interest rates are so low it almost doesn't matter.

My taxes are down, not up, and subsidies (negative taxes) are rampant. I earn more and work less than ever. What seems to be the problem?

Bark less and wag more.

At 2/02/2011 10:02 PM, Blogger Hydra said...

What the hell is out there that anyone would want to buy?

I stroll through a mall and think that they would have to pay me to take this crap home.

Why would I pay $1500 for a flat screen to watch drivel, when I have a 35 year old TV that still works?

Meanwhile my second auto CD player has failed, and I doubt they played 40 CDs between them. There ought to be a law against such junk.

At 2/02/2011 10:41 PM, Blogger Ron H. said...

"Where is the stradivarius cell phone that sounds good 200 years later?"

You can't afford it. There is no market for it. That's why you can't find it.

At 2/02/2011 10:44 PM, Blogger Ron H. said...

"What I see in practice is perfectly good stuff being trashed because I cannot be fixed."

Why would something that is perfectly good need fixing?

At 2/03/2011 1:53 AM, Anonymous Anonymous said...

Haha, good catch, Ron, I missed that. :) Although given the usual old man blubbering Hydra was emitting about how his 1980 Cadillac was the height of automotive innovation, I'm sure most people would. ;)

At 2/03/2011 8:58 AM, Blogger Jet Beagle said...

Buddy Pacifico: "One possible part of the dramatic productivity gains may be that Construction has been much less a part of the economy the last three years."

I agree, Buddy.

GDP is an aggregate number. It is possible - and I think likely - that high productivity industries have grown much faster the past three years than have low-productivity industries. If that is true, then aggregate output could easily increase significantly with far fewer workers.

2010 GDP by industry data is not yet available. But the 2009 data show that telecommunications, insurance, computer services, hospitals, scientific/technical services, and banking all continued to grow through the recession. These are generally high productivity industries.

At the same time, construction, trucking, food service, and accomodations industries shrunk. These are generally low-productivity industries.

At 2/03/2011 9:03 AM, Blogger Jet Beagle said...

One other explanation - which I've commented about before - is that large corporations use recessions to rid themselves of marginal employees. It is much easier - legally and emotionally - to lay off a worker during a recession than to fire him during an expansion.

When a recovery starts, the firm generally still has the higher productivity workers it had before the recession. So it can return to its previous level of output with fewer workers. The slackers who did not produce in the first place are gone. Productivity of the firm has increased even though productivity of the indivdual workers remains unchanged.

At 2/03/2011 9:10 AM, Blogger morganovich said...


you are so full of it.

so 10 years of double digit annual inflation is not a big deal? what would it take for you think prices are going up?

and your 1967 claim is totally irrelevant. it's the last 10 years when this "great moderation" in inflation is supposed to have occurred, yet commodity prices are moving up at record levels. can you not see the disconnect?

and how about food?

"World food prices reached their highest level ever recorded in January and are set to keep rising for months, the UN food agency said on Thursday, warning that the hardest-hit countries could face turmoil.

Rising food prices have been cited among the driving forces behind recent popular revolts in north Africa, including the uprising in Egypt and the toppling of Tunisia's long-time president Zine El Abidine Ben Ali.

And in its latest survey, the Food and Agriculture Organisation said its index which monitors monthly price changes for a variety of staples averaged 231 points in January -- the highest level since records began in 1990.

"The new figures clearly show that the upward pressure on world food prices is not abating. These high prices are likely to persist in the months to come," FAO economist and grains expert Abdolreza Abbassian said in a statement.

The Index rose by 3.4 percent from December -- with big increases in particular for dairy, cereal and oil prices. The rises were most significant in China, India, Indonesia and Russia, data from FAO's monthly report showed."

and how about health care costs in the US? that's 1/6 of GDP.

At 2/03/2011 9:13 AM, Blogger morganovich said...


"There ought to be a law against such junk."

if there were, car stereos would cost $1000 and you'd be bitching that you couldn't afford one.

go buy an alpine and this will stop happening to you.

you don't need a law when there is already consumer choice.

if you want quality, pay up for it.

At 2/03/2011 3:20 PM, Blogger juandos said...

BTW Buddy thanks for the link regarding the commodities...

Good find!

At 2/03/2011 3:31 PM, Blogger Fred said...

The demand for output is not a demand for labor.

Who knew?

Besides every classical economist, and all of the Austrians, from Hayek to Boettke.

At 2/03/2011 3:47 PM, Blogger juandos said...

Fred asks the pertinent question: "The demand for output is not a demand for labor?"...

Well Fred I'm going to guess that some of the folks in this poll might not know, but mind you I'm just guessing...


Post a Comment

<< Home