The U.S. employment picture isn't pretty. At 10%, the unemployment rate is at its highest level in nearly three decades, and it's expected to move higher. American employers cut 4.2 million jobs last year, and nearly 15.3 million people are unemployed.
Those bemoaning the increase in U.S. joblessness are right to do so. But they should also remember that unemployment is a direct result of the U.S. economy's greatest strengths – its ability to grow productivity even in a recession.
The Conference Board publishes a Total Economy Database, which gives productivity growth figures – nearly 50 years' worth, in some cases – for most of the world's major economies. The results for 2009 were just released. And the Conference Board's conclusion jumps right off the page at you: The U.S. economy is nowhere near as bad off as many pessimists believe.
In the U.S. economy's bid to rebound in this post-financial-crisis world, productivity growth may be this country's secret weapon.
Productivity growth is damned important to investors. Countries with high productivity growth – like China and most of East Asia – become steadily more muscular exporters. Thus, companies from those countries tend to enjoy a growth in market share and profitability that can provide truly stellar returns for investors. Conversely, companies from countries with inferior productivity growth (Italy and Mexico come to mind) tend to find that life as an exporter becomes steadily more difficult: Their costs soar and profits drop at a faster pace than any of their rivals.There's a clear lesson here: If you're looking for profits, put your money where the productivity growth is healthiest.
That's why last year's heavy U.S. layoffs – in the long run – may end up being good news. U.S. gross domestic product (GDP) declined by about 2.5% during the year, according to Conference Board estimates. However, U.S. employment declined by 3.6% and hours worked declined by 1.5%, so the labor input to U.S. production declined by 5.0% (after rounding). If the input declines 5% and the output declines by only 2.5%, productivity has risen by 2.5%. It's the most painful form of productivity growth in the known universe, but it's still real growth.
The wimps in Europe didn't do nearly as well. The output of the Eurozone (the 15 countries that use the euro) dropped, too, by 4.1%. But the region's employment dropped only 1.9% and its hours worked fell1.2%, so productivity fell by 1%. In Japan, output dropped more sharply – by 5.6% – but productivity rose by 0.3% as employment and hours worked dropped sharply. So overall, during the year, the United Statesbecame 3.5% more competitive against the Eurozone, and 2.2% more competitive against Japan.
Overall, global productivity fell by 1% during 2009. Although this was the first such drop since 1991, last year's decline was larger than the 0.1% fall that took place that year. Productivity dropped in rich countries, but rose sharply in some emerging markets. China, of course, was the leader, with productivity surging 8.2%., while India's productivity increased a healthy 3.9%. As for the other two "BRIC" countries: Brazil experienced a disappointing 1.5% increase, while Russia's productivity fell 3.6% (it's a good thing Russia has oil and nukes … otherwise nobody would take it seriously).
Of course, a single year's figures don't mean a whole lot; it's the long-term trend that counts. Over the long term, emerging-market productivity is growing much faster than rich-country productivity. And that makes sense as newly capitalist markets start to learn and even embrace Western business techniques and catch up with our living standards. That means Western countries, particularly those with relatively poor productivity growth, will feel the chill of competition from China and other emerging markets in years to come. Italy, in particular, has done notably worse than other European countries ever since 1995, and is now suffering from its un-competitiveness. Mexico, too, which as a relatively poor country should be growing productivity at emerging-market rates. But it is notably failing to do so, and instead is experiencing even slower productivity growth than Western Europe.
Over this longer term, the United States' record is good, but not stellar. In 1995-2005, the country saw its productivity advance at a pace that was only a little faster than that of Europe – or at roughly the same rate as Japan.
The lesson we learn here: The so-called "productivity miracle" of the late 1990s so beloved by former U.S. Federal Reserve Chairman Alan Greenspan was mostly hype.
Since 2005, EU productivity growth has slowed somewhat, except in some of the more-dynamic economies of Eastern Europe.Overall, however, there's no reason to expect Western European productivity to expand more rapidly in the recovery than U.S. productivity, so the lead taken by the United States in the recession may persist.
That's good news for U.S. investors. As for those in Europe, Asia and elsewhere who are prophesizing the "inevitable" U.S. decline? Well, we can only say that there's no sign of it yet!
News and Related Story Links:
- Money Morning News Analysis:
Latest Unemployment Numbers Prove There's No Easy Way Out of a "Jobless Recovery"
- The Conference Board:
Official Web Site
Obama: 'Road to recovery is never straight'