Get Ready for the Full-Employment Recession

Job growth is soaring yet output is falling, by one measure. Blame a historic slump in productivity

By Gwynn Guilford of The WSJ. Excerpts:

"In May, employers added 339,000 jobs, bringing the total number of jobs added this year to nearly 1.6 million, a gain of 2.5% annualized.

But real gross domestic income, a measure of total economic activity, shrank in both the fourth quarter and the first quarter. Two negative quarters of output growth are one indicator of a recession.

The economy has gone through periods where output has expanded faster than employment, but seldom the other way around"

"Labor productivity fell 2.1% in the first quarter from the fourth at an annual rate, and was down 0.8% in the first quarter from a year earlier"

"That is the fifth-straight quarter of negative year-over-year productivity growth—the longest such run since records began in 1948.

Those calculations are derived from gross domestic product, which shows output rising at a 1.3% annualized rate in the first quarter."

"GDI is the yin to GDP’s yang, measuring incomes earned in wages and profits, while GDP tallies up purchases of goods and services produced."

"Over the past two quarters, real GDP shows the economy expanding by 1.0%, not far off potential growth, whereas GDI shows it contracting by 1.4%"

"GDI previously undershot GDP dramatically during the 2007-09 financial crisis and in the early 1990s recession"

"One reason could be labor hoarding. After struggling to hire and train workers during the pandemic-induced labor crunch, employers are now balking at letting them go, even as sales slip, given the labor market’s unusual tightness. There were 10.1 million vacant jobs in April, well above the 5.7 million people looking for work that month."

"the shift to working from home generated a hit to productivity, whose impact grows with the cumulative loss of creative exchange and mentoring."

"businesses have been spending on equipment, software and intellectual property, investments that should eventually raise productivity."