U.S. Economy Is Doing What Few Others Are: Getting More Productive Many businesses have been able to do more with less and increase their revenue without passing on higher costs to customers
(…) Over the past two years, better productivity growth has helped the U.S. power past similar economies such as the EU’s and Canada’s.
So far this year, the quarterly productivity of U.S. workers has grown by at least 2% compared with a year earlier. The three months through Sept. 30 were the fifth straight quarter of such growth. Over the past five years, quarterly year-over-year productivity growth has averaged 2.1%, a sharp improvement from growth over the 10 years prior.
In Europe, productivity has grown by less than a 1% compounded annual rate since 2015. In Canada, annual productivity growth has averaged barely better than 0% since 2019.
Productivity surged during the early stages of the pandemic in 2020, at first mostly because many people in low-productivity jobs such as food service got laid off. As the economy reopened in 2021 and 2022, productivity slumped—but still remained above trend. And it reaccelerated last year, continuing to outpace the prepandemic pattern.
Though the trend is consequential it doesn’t come with simple explanations. The figures are adjusted for inflation, which means that greater productivity doesn’t merely reflect higher prices charged for the goods and services workers produce. Statistics don’t measure productivity directly—they only decipher it by measuring output and hours worked—so the numbers only offer hints about what kinds of changes are fueling these gains.
Some economists cite the pandemic as the origin of the U.S. productivity boom. Government stimulus sparked a surge of consumer demand, and low interest rates encouraged business investment, while enhanced unemployment benefits made job seekers harder to come by.
The combination left companies with no choice but to get more done with fewer people on staff—whether that meant turning more to new technology, such as self-serve checkout lanes at supermarkets, or simply forcing office workers to multi-task, said David Kelly, chief global strategist at JPMorgan Asset Management. (…)
Adding to the mystery, American workers have achieved much greater productivity gains than their peers in countries that seem similar on the surface, such as Canada, Australia and most EU members. That suggests a secret sauce that has helped the U.S. post some of the developed world’s best growth figures.
Some economists have explained the divergence by turning to a uniquely American phenomenon: a vast pandemic reshuffling that matched workers with new opportunities, giving them a chance to earn more and contribute more.
The staffing crunch forced companies to hire workers into higher-responsibility roles than they otherwise would have, boosting those candidates’ productivity. And the rise of remote work allowed people to search across the whole country for jobs that would suit them best, yielding higher-productivity opportunities.
In the U.S., the format of the unemployment-insurance system and lighter regulation around work made this process more frictionless than in other major economies, said Philipp Carlsson-Szlezak, global chief economist at Boston Consulting Group.
“I view U.S. outperformance in this dimension as a silver lining of our very flexible labor markets,” Carlsson-Szlezak said. “Workers came back into the labor market and often moved up a rung or two on the productivity ladder.”
Assuming no one switched jobs more than once, about 35% of workers found a new employer in 2022, up from around 30% in typical years before the pandemic, according to a Pew Research Center analysis. Many of those pandemic-era job switchers probably found higher-productivity work, as reflected by stronger wage gains. In the 12 months through March 2022, 60% of job-switchers got a wage increase, compared with fewer than half of those who stayed at their old company.
Another contributor: a remarkable jump in the formation of new companies, which, especially in technology-driven fields, often reflect that an entrepreneur has conceived of a new way to do business more efficiently.
Since the start of 2021, the weekly number of high-propensity new-business applications—those with a strong likelihood of becoming sustainable businesses—has averaged about a third greater than during the four years before the pandemic.
Here too, the U.S. stands apart. The EU produces far fewer startups, and they tend to grow much less quickly, International Monetary Fund researchers wrote this fall.
Young small businesses are hotbeds of new ideas that, when successful, can spread productivity improvements on a grand scale, said Olivia White, a director at McKinsey Global Institute who has been studying productivity in businesses. (…)
Euro-Zone Consumers Finally Start Spending, Boosting Growth Household outlays rose 0.7% q/q in 3Q as wages surge
Household expenditure increased 0.7% from the previous three months, while investments advanced by 2%, Eurostat said Friday. Trade was a drag, leaving overall growth at 0.4% — as reported in an initial estimate. (…)
Price growth temporarily dipped below 2% in September. (…)
Wages, meanwhile, have risen strongly following the inflation spike in recent years. Data later Friday from the ECB showed third-quarter compensation per employee rose by 4.4% from a year ago, down from 4.8% in the previous period but still elevated. (…)
A key question is how sustainable the rebound in spending will prove. Business surveys have pointed to flagging momentum in the economy as the services sector begins to suffer alongside manufacturing. (…)
Germany’s biggest labor union, IG Metall, recently agreed on a deal that economists saw as moderate. ECB Executive Board member Isabel Schnabel told Bloomberg last week that “we can expect a deceleration in wage growth, and the most recent wage negotiations, for example in Germany, were not very strong.”
Officials have also been keeping a close eye on corporate profits and workers’ productivity to get a full sense of euro-area price pressures. Based on hours worked, the latter rose 0.5% from a year ago in the third quarter, Eurostat said.
OPEC+ Pause Earns Low-Key Response From Banks as Concerns Linger Further delays ‘do not solve’ group’s basic problem, HSBC says
The move by OPEC+ to delay a revival of supply to April will pare global oil output next year, tightening balances somewhat, but a glut is still widely expected, according to banks and industry consultants.
Banks including Morgan Stanley raised price forecasts modestly after the decision by the group, which was in line expectations heading into the meeting. Still, higher supply, especially from nations outside OPEC+ in the Americas, as well as poor demand from China, remain major concerns. (…)
OPEC+’s extended phasing out of cuts will still leave considerable spare capacity of about 5.2 million barrels a day at the end of 2026, according to analysts including Kim Fustier. “Further delays do not solve OPEC+’s basic problem that non-OPEC production is set to grow faster than demand over 2025-2026, leaving the group no space to unwind its cuts,” they said.
The one hope for OPEC+ is that a more vigorous enforcement of existing sanctions on Iran by the Trump administration could reduce oil exports and open up some space for other members to increase their output, they said. (…)
- The global crude oil market will be well supplied next year.
Source: BofA Global Research
China Vanke Sales Slump Worsens After Debt Cracks Show Up
Contracted sales for November declined 34.4% from a year earlier to 20.1 billion yuan ($2.8 billion), widening from a 22.8% drop in October, corporate filings show.
The sales drop underscores the strains at state-backed Vanke, one of the few distressed Chinese developers that have yet to default during the unprecedented property downturn. The government’s efforts to stem the sector’s decline have yet to materially reinvigorate homebuyer demand. (…)
Its combined losses for the first nine months of the year amounted to 17.9 billion yuan.
Bloomberg Intelligence has cautioned that Vanke’s solvency in 2025 and 2026 could be increasingly at risk if the sales slide drags on. Vanke has 25.1 billion yuan of onshore and offshore bonds maturing next year, according to data compiled by Bloomberg.
S&P Global Ratings downgraded Vanke to B+ from BB- with a negative outlook in November, saying the builder’s slow progress in reducing debt is leading to higher leverage. The ratings company expects the developer to prioritize liquidity preservation over deleveraging, and sees its balance sheet shrinking due to more discounted asset sales and a reduction in land acquisitions. (…)
SENTIMENT WATCH
Investors pour $140bn into US stock funds after Trump election victory Bets incoming administration will enact ‘pro growth’ agenda spur rush into Wall Street equities
(…) The rush of buying made November the busiest month for inflows on records stretching to 2000. (…)
US fund inflows are hitting extreme levels.
Source: Goldman Sachs; @Marlin_Capital
- Bull/bear ratio. The Investors Intelligence Bull/Bear Ratio has surged from 2.3 in mid-October to 3.9 last week. The percentage of bulls is up to 62.9%, around historical highs. (Ed Yardeni)
- Consumer expectations. The Conference Board’s November Consumer Confidence Index (CCI) survey showed a record 56.4% of consumers expect stocks to be higher in the next 12 months (chart). That’s even more bullish than ahead of the Tech wreck in 2000. (Ed Yardeni)
- Foreign buying. Treasury data show that foreigners have stepped up their purchases of US equities in recent months. The 3-month moving average of foreign private purchases of US stocks hit an all-time high in September (chart). Historically, foreigners have been poor timers of the US stock market, tending to chase rallies into blow-off tops. (Ed Yardeni)
AI CORNER
CFOs steer a steady path through volatility Profit forecast is strong amid shaky economic outlook
Grant Thornton’s CFO survey for the third quarter of 2024 shows that finance leaders’ belief in their ability to drive profits at their organizations remains unshaken even as their confidence in other key fundamentals tumbled in an unsettled environment.
Despite a substantial drop in their confidence about meeting increased demand and cost control goals, 79% of respondents — a 10-quarter high — said they expect a growth in net profit over the next 12 months. Although the percentage that expect growth over 20% fell, the implication is clear: even amid substantial economic and political volatility, CFOs believe they can push the right buttons to help their organizations thrive in the long term. (…)Nearly two-thirds (66%) of finance leaders said they expect to increase their spending on IT and digital transformation in the next year. That’s a 15-quarter high in the survey, a testament to respondents’ belief that this investment can make their organizations more effective and efficient.
“These investments have become table stakes,” said Paul Melville, Grant Thornton’s CFO Advisory Services National Managing Principal. “CFOs understand that they need these technological capabilities to be competitive.”
The survey also shows that more organizations are expanding their generative AI use into customer-facing areas. The surveys from the first and second quarters of 2024 showed generative AI being deployed for data analytics and business intelligence; financial operations and processes; and cybersecurity and risk management. In all those areas, the technology is walled off from the customer, reducing the potential of public backlash if generative AI goes awry.
Now, a majority of CFOs say they are using generative AI for customer relationship management/customer experience (60%, up from 45% in Q1) and product/service development (58%, up from 35% in Q1). Meanwhile, the survey shows boards are getting more active in understanding governance over generative AI, providing a steadying influence in an area with potential for high rewards and high risks.
“In the era of GenAI investment, management teams will spend resources on the use cases they believe create a competitive advantage in the market,” said Mike Notarangelo, Partner and Private Equity Audit Leader for Grant Thornton. “Boards of directors need to develop an agile AI governance framework to evaluate those investments and safeguard against AI-related business risks.” (…)
Although spending on technology, sales and marketing may help achieve the cost optimization that CFOs in this survey said they crave, it’s more difficult to identify areas where they plan to cut. In fact, 14% of respondents said they don’t plan to cut any costs — a record-high in this survey. (…)
But workforce rationalization was at an all-time low in CFOs’ areas of focus after a huge drop from the previous quarter, and the percentage of respondents predicting potential layoffs fell to a five-quarter low. (…)