Q1 More Productive

Productivity is the ultimate determinate of our standard of living. If real GDP rises, but does so at less than the rate of population growth, then per capita GDP will fall. In the short term, it can be affected by changes in the proportion of people working, but over the long term increasing output per hour worked is the only way to make a society more wealthy.

Thus the news that in the first quarter grew at 1.6%, rather than the 0.8% originally estimated, is very welcome news. The consensus expectation was that it would be revised up, but only to 1.2%. Both output and hours worked were down in the quarter, but hours worked fell more than output, leading to better productivity.

It appears that within the numbers though there were some serious divergences, with productivity up at 1.8% for the whole business sector, but up 1.6% for the non-farm business sector. This would imply that things are going very well down on the farm given the relatively small size of farming in the current economy.

The service sector far outperformed manufacturing since manufacturing productivity was down 2.7% in the quarter. Within manufacturing, there was a serious divergence between durable goods, where productivity plunged 10.4%, and non-durable manufacturing, where it rose 1.9%. Manufacturing productivity is always more volatile than service sector productivity, but this is a big, big difference, especially with durable goods.

Part of that is due to the inherently more unstable nature of manufacturing, particularly durable goods relative to services, and part is due to different methods the government uses to do the calculations. However, the same calculations are done for durables and non-durables.

This data clearly indicates that non-durable firms should be doing better than durable goods firms. Stick to firms where people need to buy the stuff on a regular basis, not things that can easily be put off. For example, stick with firms like Procter & Gamble (PG - Analyst Report) and Del Monte (DLM - Analyst Report), not Winnebago (WGO - Snapshot Report) or Harley Davidson (HOG - Snapshot Report).