Productivity suggests that the employers were able to obtain more output without increasing costs but at the same time salaries went up. So how was that possible? Obviously, savings in the cost of goods might help, and upgraded computer systems might be part of the answer, but labor cost is such a large component of production that it would appear that the very nice productivity growth of 1.7% we achieved would have been higher if labor costs didn’t rise.
Increasing productivity is key in holding inflation in check but more importantly it makes our exports more competitive. Since our dollar is rising this takes on a importance that cannot be overstressed.
We are in a world economy and the U.S. is and has been very productive which even with increases in labor costs keeps us competitive. The EU has had little to no increase in productivity for years and look where they are. Also, sharply rising salary costs in China is shrinking their advantage as our employees become more and more productive.
As a result manufacturing is starting to flow back to U.S. soil. The flow may not be a river of returning industrial production but it is no longer a trickle either.