5. Labor Productivity Surges

Labor Productivity is a complicated formula, but for our purposes, it is simply output over cost. The higher, the better! Since 1950, labor productivity has averaged 1.5%. From 1994 through the first quarter of 2000, labor productivity was at a record 3.5%. The economy was growing at 4% or more. We had two years of government surpluses. Nasdaq was roaring. This was not due to the politicians; it was due to the broad adoption of the internet! The internet saved so much time and money. The period from 1994 through the first quarter of 2000 was a golden period.

During the Obama years, labor productivity dipped to 1% and sometimes even less. The revised figure for labor productivity for the second quarter, released with the producer’s price index yesterday, showed a return to (3.5%)! This followed a first quarter which had registered labor productivity at about (-0.1%).

As long as labor productivity remains at a healthy level, say above (2%), we can expect the markets to remain healthy and stocks to continue performing well. It appears third-quarter labor productivity will also be high.

What explains the recent surge? Possibly the work-at-home crowd and early benefits of Artificial Intelligence that were unexpected.

Have a blessed week!

Tony Christ