Productivity problem

Lots of US jobs - just not yet productive ones

US jobs are coming thicker and faster - just not yet productive enough ones. The 288,000 new positions in April reported on Friday, together with upward revisions to previous months, make welcome reading. But since 2010, gross domestic product (GDP) has increased only slowly relative to employment. This means productivity growth has been weak, especially compared to the last recovery starting in 2002. That's a problem if it persists.

The jobs report had dark spots, like a dip in workforce participation that brought the figure back down to the lowest level seen in recent decades of 62.8 per cent. Yet with the headline unemployment rate dropping to 6.3 percent, the overall cheer of the jobs report differed sharply from the gloom of Wednesday's initial estimate of first-quarter real GDP, which showed only a 0.1 percent annualised pace of growth in the quarter.

That's too short a period for a reliable comparison. Looking further back, since early 2010 real output has grown a total of 9.2 per cent while nonfarm payrolls have added 6.3 percent in aggregate. Expressed as the average annual increase in output per employee, productivity growth over the past four years has reached only about 0.7 per cent. Contrast that with the 2.2 per cent annual productivity growth seen in the recovery between 2002 and 2006, and it looks pretty feeble. Even the average annual 0.9 per cent productivity improvement from 1992 to 1996 was stronger.

Meanwhile, Americans' hourly earnings have failed to keep pace with inflation in the past four years, rising only 8 percent overall compared to an 8.4 percent increase in consumer prices. Combine that with subpar productivity growth and the detail of the employment report - which suggests a concentration of job gains in low-wage sectors such as retail and hospitality - and it's hard to see average living standards improving much, if at all, even with more people working. Faster growth and a tighter labour market could change that, but for now it's another consequence of the persistently sluggish US recovery.