The BLS on Thursday delivered a sobering read on productivity and unit labor costs.
Suffice to say this isn’t a release that makes it onto most market observers’ radar, but it’s an important snapshot.
The 0.8% productivity decline was the first negative reading in almost three years. As a quick reminder, this is output per hour. You don’t want it to fall, particularly if you’re a business.
The mathematical read-across for operational efficiency isn’t great. As the chart above shows, unit labor costs rose by nearly 6% in Q1, the second-most since 2022.
I don’t want to make too much of this, particularly given that these are preliminary estimates. But these are “wrong way” prints, and they make for a rather amusing juxtaposition with the Trump administration’s fixation on efficiency. This release suggested the US is backsliding in the efficiency department.
If you want robust growth without uncomfortably high inflation, you need steady productivity gains. Part and parcel of achieving that is business investment. When you create a lot of uncertainty, as Donald Trump has, business investment tends to suffer. You can’t plan and invest confidently when government policy’s as unpredictable as it is currently.
The notion — parroted by Scott Bessent and a lot of other people who know better — that Trump’s seat-of-the-pants policymaking is somehow in the interest of American businesses is absurd.
Let me emphasize this because, based on email feedback from a few Republican readers, there are some of you who genuinely don’t get it: No one intelligent thinks what Trump’s doing is a good idea. Even people who say they do, don’t. So, if you do (think Trump knows what he’s doing), and you find solace in Bessent’s public remarks, know this: He’s lying.
Yes, there’s a “true believer” camp. No, you don’t want to be in it any more than you’d want to be anywhere else Peter Navarro is.
Anyway, business output shrank 0.3% in Q1, according to Thursday’s release. It was the first decline since headline inflation was running 9% in America.
Surely “Liberation Day” will be a welcome tonic for both productivity and ULCs, no? A little sand in the gears never hurt anything! Conventional lubrication is a hoax perpetrated by disgruntled former lubers. I believe!
Oopsie. No, clearly not a data point that will get Truthed out there by Trump. Agree, no one should make too much of this for all the reasons, but I’m glad you’re here making at least something of it for us.