Q3 US worker productivity surged a full 3% past expectations, hitting an annual growth rate of 9.5%.
For those clamoring over fears of a "jobless recovery," remember: A strengthening economy bolsters labor markets, not the other way around.
Stocks continue to climb a wall of worry as they price in expectation of future profits.
As queasiness about our economic future slowly eases, investors are hungry for any good news they can get. Last week's positive GDP announcement only served to whet appetites—any clear confirmation of recovery won't be available until after it's well underway. Today's productivity report, however, may provide a satiating morsel.
The Labor Department announced Thursday Q3 US worker productivity surged a full 3% past expectations, hitting an annual growth rate of 9.5%— the largest productivity increase since Q3 2003. Productivity in the manufacturing sector rose a blistering 13.6%—the largest gain on record (since 1987).
The severity of last fall's credit and stock market panic caused companies to cut costs dramatically—headcount, investments, and inventories alike. Now, leaner companies are seeing higher productivity and likely greater profit margins as demand slowly returns. This new business environment, ripe with the potential for corporate profitability, is likely to breed economic recovery.
Productivity gains are important for more than just corporate earnings. Learning how to succeed and profit with fewer resources (as firms are now) is a driving force behind innovation. While it's difficult to see so many jobless in the short term, the societal benefits of increased productivity are long-lasting—more efficient procedures result in new roles for workers to fill.
Friday's unemployment report might shock some as the unemployment rate creeps closer to 10%, but rising unemployment and increased productivity are natural parts of a recovery. Firms typically cut headcount much more quickly than revenues decline, so productivity jumps. But firms won't rely on productivity gains indefinitely—eventually, as demand picks up, they'll need to begin hiring again. For those fretting a "jobless recovery," remember: A strengthening economy bolsters labor markets, not the other way around.
Critics claim slashing costs and resulting productivity increases don't represent real growth. There's some truth to that, but it misses the point these are necessary precursors to real growth—economic appetizers if you will, before the main course is served. Today's significant stock market gains show skeptics' dour outlook is in itself bullish—stocks continue to climb a wall of worry as they rise in expectation of future profits.