One of the biggest unsolved puzzles of the post-recession era has been the stagnation of productivity.
It’s not just a US phenomenon. In advanced economies around the world, the output derived from every hour of work has been declining, capping the extent to which workers have been able to contribute to growth. Sluggish productivity gains also help explain why wage growth has been nearly stagnant for most of the recovery.
This puzzle — and why it needs to be solved — was one of the threads that ran through panel discussions at the Milken Institute Global Conference on Monday.
The remarks were kickstarted by Christine Lagarde, the managing director of the International Monetary Fund (IMF), who said that productivity growth will be a critical component of the US economy’s future.
And from an investor’s perspective, Tom Finke, the CEO of Barings, said productivity should be considered alongside other fundamentals like earnings when weighing what to trade in capital markets.
Below are highlights of the remarks that panelists made on productivity and its importance going forward:
Christine Lagarde — managing director, IMF
“Productivity is going to be critically important.
“The odds are that the productivity numbers will be good. And if that’s the case, then it’s really encouraging because we have been waiting for productivity being higher pretty much across the board in all advanced economies and we’re not seeing it. And this is not post-crisis, it started earlier than the crisis.
“But given the investment in new technologies and what is expected out of those capex movements that we’ve seen in the last four quarters, there should be some movement on productivity. If we see that, it’s encouraging because it would mean that the growth potential is improved, and it would plead for more sustainable growth at higher levels.
“If productivity is still at the low end, I wouldn’t be as optimistic.”
Lara Warner — group chief risk officer, Credit Suisse
“What was most interesting to me was Lagarde’s point on productivity: that we actually don’t know whether we’re measuring it correctly.
“I do think you have to acknowledge the fact that productivity is probably occurring in very specific pockets in some industries. And in other industries, there’s been a complete disintermediation by technology of the workforce.
“I think it will be very interesting for all studiers of the economies around the world to better have a sense of where that productivity number is going because I would suspect that that’s probably one of the missing outlets that we don’t have.”
Richard O’Hanley — president and CEO, State Street
“I also think that it’s been very hard to measure productivity, particularly in services.
I think it was David [Hunt, CEO of PGIM] that made the point earlier: It’s just relatively recently that you’re seeing lumps of business investment into productivity, particularly among service firms. I think that, in itself, should drive more productivity and is definitely going to keep service inflation down.”
Tom Finke — chairman and CEO, Barings
“I think [a yield-curve inversion] does matter but you’ve got to look at the fundamentals. And, you’ve got to invest with a view towards what are the other signals in the economy? Where’s growth, where’s earnings, where’s productivity when you’re looking at companies and industries?”
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