Experts Say Productivity Increases Might Explain US Economy’s Strength

Worker shortages in the United States have led some companies to invest in machines to do some of the work they cannot find people to do. The companies have also been training workers to use new technology so they can produce more with less.

The result has been an unexpected increase in productivity, a measure of economic performance. Productivity compares two sets of data: outputs and inputs. Outputs are the goods and services produced, while the inputs are what is needed to create those goods and services.

Productivity increase

The productivity increase represents a change from the years before the COVID-19 pandemic years. Yearly productivity growth averaged around 1.5 percent, business advisory company RSM estimates.

Things changed when the economy moved out of the 2020 recession. Businesses had difficulties bringing back the many workers they had lost.

The resulting worker shortage sent pay higher. Inflation increased for a number of reasons. One was that factories and ports had problems meeting rising product orders while shipping slowed. Shortages of parts were also reported.

Many companies turned to automation. Investment in equipment and in research and development and other forms of intellectual property grew. The Associated Press reports that the efficiency effects began to arrive almost a year ago.

The U.S. government's Bureau of Labor Statistics (BLS) reports on productivity. The BLS released its most recent productivity numbers on February 1. The bureau said: "Nonfarm business sector labor productivity increased 3.2 percent in the fourth quarter of 2023."

One company's story

Batesville Tool & Die is a company based in the Midwestern state of Indiana. Trying to keep up with customer demand, Batesville Tool & Die began looking for 70 people to hire last year. It was not easy. Getting factory workers to move to a small community of 7,300 people in the Indiana countryside was difficult.

Job seekers were rare there.

"You could count on one hand how many people in the town were unemployed," said Jody Fledderman, the company chief.

Batesville Tool & Die filled just 40 of its job openings.

But then the company invested in machines that could work like human workers and in vision systems, which helped its robots "see" what they were doing.

Productivity: not well understood

Austan Goolsbee is president of the Federal Reserve Bank of Chicago. He has compared increasing productivity to "magic...for the economy...You can have faster income increases, faster wage growth, faster GDP without generating inflation.''

Joe Brusuelas is chief economist at RSM. He said, "The last time we saw anything like this was the late 1990s."

At that time, Brusuelas said, a productivity increase — an early result from the sudden use of laptops, cellphones, and the internet — helped keep borrowing rates low. Inflation remained under control even as the economy and the job market were strong.

This time, the U.S. central bank has increased the interest rates it controls 11 times starting in March 2022. That has played a part in easing inflation from a 40-year high of 9.1 percent to around 3.1 percent.

"I would have said it's not possible,'' said Sal Guatieri who is an economist at BMO Capital Markets. "But that's exactly what happened.''

A year ago, many economists warned that a recession was very likely. Jerome Powell leads the U.S. Federal Reserve Bank. Powell warned in 2022 that beating inflation would result in "some pain" in the form of widespread job losses and unemployment.

Last month, Powell said something different. With unemployment near a 50-year low, Powell told reporters, "We've had a very strong labor market, and we've had inflation coming down."

He did warn that the central bank wants to see further progress in slowing inflation. But the Fed is so optimistic that inflation is heading toward its two percent goal that it has not raised rates since July. Some experts expect the central bank to cut its interest rates several times this year.

At a news conference this month, Powell was asked whether he believed higher productivity helps explain why the economy has kept growing even while inflation has fallen.

"That's one way to look at it — yeah," Powell replied.

I'm John Russell.

Paul Wiseman reported on this story for the Associated Press. John Russell adapted it for VOA Learning English.

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automate – v. to do something by using machines, computers, etc., instead of people

efficiency – n. the ability to do something or produce something without wasting materials or time

wage –n. money paid workers — especially for work by the hour

GDP (Gross Domestic Product) –n. a measure of a country's economy that is the value of all the goods and services produced in one year

recession – n. a period of time in which there is a decrease in economic activity

optimistic – adj. having hope for the future