NEW YORK: After fresh evidence last Friday of dramatically weak job creation, economists suspect productivity gains are yet again accounting for the bulk of US economic growth.
As economists, politicians and around eight million unemployed Americans wait for the labour market to show a solid rebound, it once again seems that efficiency gains are coming at the expense of new jobs.
The Labour Department said the economy created only a paltry 21,000 jobs in February, and that was just the latest in a string of disappointing payrolls reports.
That spells bad news for the traditional source of consumer spending power – wage gains – and raises the risk of the economic recovery faltering later this year.
For two years now, productivity growth, a measure of how much workers produce an hour, has been at historical highs as companies rely on squeezing their existing employees to meet demand, rather than employing more workers.
Federal Reserve chairman Alan Greenspan has been expecting productivity growth to slow, but the latest payrolls report implied that may not be happening yet.
“Obviously, the relationship between economic growth and employment has broken down,” said Sung Won Sohn, chief economist at Wells Fargo.
He noted that US economic growth was coming from only two sources: employment and productivity gains. “Businesses are under intense margin pressure, forcing them to rely on productivity gains,” Sohn said.
Consequently, the risk of an economic slowdown later this year has increased. That in turn has put a squeeze on wages for those lucky enough to be employed. The latest payrolls report showed annual growth in hourly earnings slowed to just 1.6% in February, the lowest level since 1986.
All in all, the US economy has added just 118,000 jobs so far this year. And yet analysts still expect gross domestic product (GDP) to grow by at least 4% in the first quarter. – Reuters