It sounds awful. But there are plenty of reasons why it might not be a bad sign for the country’s economic outlook.
Admittedly, the recovery stumbled between July and September under the sudden threat of the Delta variant, which weighed down productivity. Worse, supply chain chaos, which has yet to be resolved, has hampered production in various sectors.
Together, these factors help explain the sharp decline in productivity, which declined at a seasonally adjusted annual rate of 5% between July and September. This is the biggest drop since the second quarter of 1981, the Bureau of Labor Statistics said Thursday, when the United States was in the middle of a 16-month recession. In the third quarter of this year, production rose 1.7%, while hours worked jumped 7%.
But just looking at those bad numbers in a vacuum doesn’t tell us much about the job market trend, said Sarah House, senior economist at Wells Fargo. A single data point – like a drop in productivity – rarely paints the full picture, she added.
“You had this time lag in terms of what was going on between Delta, and we were coming out of the top of the reopening and all the tax support that we had,” House said.
It is therefore not uncommon to see productivity slow down after a period of intense ramp-up, as we have seen in earlier phases of the recovery.
“Production doesn’t increase as quickly as you get into the more mature part of the recovery and the workforce recovers faster,” House said. As the labor market returns to normal, for example, the number of hours worked also increases.
“Supply chain issues were further hampering production,” she added.
Businesses are also grappling with the pandemic workforce shortage, which means they have to pay to attract employees. Unit labor costs jumped in the third quarter, increasing at an annual rate of 8.3%, far more than in previous quarters.
But the decline in productivity also means that it is increasingly difficult to find workers, and more expensive to hire, without passing the additional costs on to consumers, who are already paying more amid rising raw materials. and shipping costs.
“We believe wage growth will remain high, but we expect some moderation in the second half of next year,” House said. “This will relieve some of the pressure from business. “