One Of The Economy’s Most Important Numbers Is Quietly Getting Better

How much did you get done at work today? How everyone answers that question determines one of the most important statistics in the economy, and it’s quietly been on the upswing.

Non-farm workers’ output per hour rose at a 2.4% annual rate in the second quarter, the Bureau of Labor Statistics reported earlier this month. Productivity bounced back after a 1.8% downturn in the first quarter. The latest rate is above the historic average of 2.1%.

While that small difference may not seem like a big deal, it’s a reassuring signal that, beneath the churn of stock values, employment statistics, inflation, and other widely watched figures, people produce more value for every hour they’re on the job. And that’s huge for the future of everyone’s standard of living.

“The adage that productivity is the elixir of economic growth continues to ring true,” economists at Wells Fargo Securities led by Sarah House wrote in a commentary this week.

Those steady increases in annual productivity have added up tremendously over time, as people have learned how to work more efficiently and businesses have invested in ever more advanced equipment. The U.S. economy currently produces 4.5 times more goods and services per person than it did in 1947, while people actually work fewer hours on average, according to data from the Bureau of Labor Statistics and the Bureau of Economic Analysis.

According to Wells Fargo economists, there are at least three key reasons productivity is improving these days and could continue to do so well into the future.

Automation

Businesses have heavily invested in machines and software: for instance, Wal-Mart has bought self-driving forklifts, Amazon now has nearly as many robots working for it as people, and Chipotle is testing out an avocado-peeling robot. Not to mention the adoption of generative AI, which could help some workers be more productive and, in some cases, even replace human workers entirely.

Work From Home

Despite some high-profile companies touting return-to-office mandates, far more people are working from home than they did before the pandemic. That could be making the workforce more efficient. The Wells Fargo economists noted the effect of remote work is “contested” in the business world, with some notable downsides, including making it harder for entry-level employees to learn from their colleagues.

Entrepreneurship

The pandemic’s disruption turned out to be innovative in at least one major way: millions of people decided to start their own businesses. According to Census Bureau data, the surge of business applications in 2020 is still going strong. That could help spur innovation and competition, which are good for productivity.

Can It Last?

Economists at Wells Fargo expect the productivity boost to continue, running above the long-term historical average of 2.1%. But not everyone is so optimistic. The Congressional Budget Office projects productivity will rise at 1.4% a year between 2025 and 2035.

Government policy changes could disrupt the trend. President Donald Trump’s crackdown on immigration and implementation of tariffs could have some productivity downsides, the Wells Fargo team wrote.

For instance, industries protected from foreign competition will have less incentive to innovate, while a downturn in highly skilled immigrants would make the workforce less productive.