This topic deserves a much deeper dive than I am going to give it (for now). What the Bureau of Labor Statistics said today was that US labor productivity absolutely plunged during the third quarter. The reason, in statistical terms, was very simple: total hours worked rose more than total (private) output had; a lot more, way, way too much more.

The raw numbers: hours increased by 1.8% in Q3 2021 from Q2, an annual rate of 7.4% which largely agrees with the other labor data.

This still leaves total hours (on a quarterly basis) about 1% less than the number worked all the way back two years ago during Q4 2019; which, sadly, also matches the rest of the labor data therefore succinctly summing up the actual state (pitiful) of the labor market, Q3’s rate of change notwithstanding.

However, as we know already from the latest GDP numbers, output had been “surprisingly” weak. Private output (a subset of real GDP as produced by the BEA) only gained 2.23% (annual rate) from Q2 to Q3, therefore the difference between hours and o output therefore productivity was an enormous -5.15%!

This was the worst quarter for labor productivity in more than sixty years.

First, the long run.

Economists talk about this somewhat infrequently while the media mostly avoids the topic. By the numbers, what is perfectly clear is how – in the US economy – the only time when productivity ever rises significantly it is during periods when American businesses are laying off, furloughing, or sacking employees by the millions.

I wish I was making this up:

Productivity, though, isn’t just a set of interesting numbers, it tells us something about business profit potential as it relates to the use of labor.

Rather than laziness, what if productivity has remained low because revenues (output) never really rose nearly as much as businesses were repeatedly told to expect? Central bankers at the Fed always claim recovery and a robust one, maybe cautious firms carefully begin to add onto their payrolls anticipating (if somewhat skeptical) a plausible (sounding) boom.

But then it doesn’t boom.

This would also account for why the only real increases in productivity come during weak labor markets when seriously limited output growth better matches the situation; none more so than during the two severe recessions, first 2008-09 and then, so much unnecessarily, 2020.

Which brings us to the “shocking” disappointment of Q3 2021.

This awful productivity result strongly insinuates that, no sir, employers were left holding the bag yet again! Economists and Fed officials said to expect one thing and it didn’t happen (surprise, surprise).

Even if companies are somewhat forgiving, blaming Q3’s widespread macro shortfall on delta or whatever excuse-of-the month (quarter), are they really, seriously going to be falling all over themselves to bid up and on even more labor in this quarter that they clearly didn’t need last quarter?

And if the answer is, “no”, how long might this reluctance in labor utilization persist? Remembering, first, that this isn’t employers’ first rodeo with such probable false dawns.