WFH

The concept of working remotely, or a hybrid schedule, was uncommon before the pandemic. It remains to be seen if this is a long-term change, or a knee jerk reaction. Disconnection from your coworkers will not work if you are coordinating toward a common goal. The debate continues as to whether you are more productive working in your sweats, or in the office in business attire.

The labor market continues to be a major focus of the FOMC and the markets. Productivity of workers makes a huge difference in wages, and consequently in the inflation outlook for our economy.

U.S. productivity

The standard method of calculating workers’ efficiency is output per hour worked. The chart below shows that first quarter 2024 is continuing the upward trend of the past couple of years. The pace of improvement since the pandemic is not slowing down. 

Source: Oxford Economics/Haver Analytics

The labor market continues to show strength, with 272,000 jobs added in May. The Federal Open Market Committee (FOMC) is watching this very carefully, as high labor demand will potentially lead to higher wages. This is one of the things that is forcing them to leave rates higher for longer.

They are watching productivity very closely as well. Productivity growth means that wages can run higher without being inflationary. The productivity impact will hold down unit labor costs.

Global picture

Productivity is a focus around the world, and, of course, you must compare countries to see who is better! This is a different calculation than we saw above; globally, we are looking at change in GDP per person employed. As you can see below, post-pandemic, the U.S. has significantly outperformed Germany and the Euro area.

One explanation for this phenomenon is that U.S. GDP has been outpacing other countries over this time period. The underlying strength of the economy continues to surprise economists, and this is one of the factors keeping the FOMC on hold longer. In general, they would be lowering rates to stimulate the economy to grow faster, but they don’t need to!

Another twist on the global picture is how job losses were handled during the pandemic. While the U.S. did provide fiscal stimulus to employers, there were still significant job losses. As you can see below, Germany and the Euro area provided much more assistance and the jobs were retained.

While this may have helped workers during the pandemic, this could be one of the factors explaining lower productivity coming out of the crisis. Either they were not as productive, or the GDP did not measure up to the U.S.

If we dig deeper and look at productivity from the more granular approach of hours worked, will we see a difference? The chart below shows that the U.S. is still significantly outperforming France and Germany.

The U.S. is still the place to be for a strong economy with plenty of opportunities.

Economic releases

Last week had inflation news and the FOMC announcement. While the inflation metrics seem to be improving, the FOMC sent the message that they are not in a hurry to lower the Fed Funds target rate.

This week’s calendar will give us retail sales and the start of housing numbers. In addition, the Fed talking heads will be back on the circuit. See below for details.