Productivity on the Decline

Higher labor costs, lower labor outputs — that’s the situation business finds itself in right now:

The Labor Department said Wednesday that productivity, which is the amount of output per hour of work, fell at 1.9 percent rate in the first quarter. Productivity dropped at a 2.1 percent rate in the final three months of 2014.

Labor costs surged at a 5 percent rate in the first quarter, after having increased 4.2 percent in the fourth quarter.

Falling productivity coupled with higher labor costs are usually a negative for the economy, since it implies additional expenses without improvements in worker efficiency.

One economist quoted in the story blames the weather, but that excuse is wearing thin. I wonder if the stronger dollar isn’t behind a good chunk of the productivity losses. Overall a strong dollar is beneficial to the economy, but of course there are disruptions when it appreciates so much, so quickly.

We’ll see.