When Will Productivity Start Increasing Again?

Co Bank provides loans to cooperatives and other Farm Credit Service banks across the country.  They also issue a monthly Outlook and for the February issue, Lee Ohanian, an economist with UCLA was interviewed regarding the lack of growth in productivity over the last few years.

In layman’s terms, productivity represents the growth in total GDP divided by the number of people in the workforce.  The long-term historical average annual growth has been about 2.5%, however, since the recession hit in 2008, the growth rate is about 1.1% per year.  To increase this rate, business needs to invest in new equipment and infrastructure and since 2008, they have not done much of this, except for the farming industry.  Without the investments by farmers, I would guess the productivity growth rate would be even lower than what it currently is.

Business continues to be worried about the Affordable Care Act (Obamacare), Dodd-Frank, Environmental regulations and demand for their products.  Until there is better focus on these items, productivity growth will remained constrained.

Over history, agriculture has been a shining star of productivity growth.  In the late 1800s, about 60% of the total workforce was working on farms.  Today, one half of one percent of the workforce is engaged in producing food.  Over the next few years, this percentage may continue to decline.  It is a remarkable success story.

Paul Neiffer, CPA