Tuesday, September 6, 2016

Productivity Drop, Of Course

There's been a buzz in the press about the slowdown or drop in US productivity. Productivity is usually measured by revenue per employee. Two predominant theories: we're returning to normal after a heyday in the Industrial Revolution and post-World War II global dominance and the microcomputer innovation burst of the 1990's; there's a lack of research and development spending in the Financial Age when corporate profits are not spent on innovation but stock buy-backs.

A chart from 2014 shows productivity is the highest in the financial sector (no surprise) and lowest in the service sectors (retailing general merchandise and food) where it takes a lot of employees. Wal-Mart (#1 on the Fortune 500) is the largest employer and has productivity at $219K/employee whereas Berkshire Hathaway (#4 on the Fortune 500) productivity is nearly 3x Wal-Mart's.

A rise in financial companies means productivity will be on the rebound. However, 40% of the jobs projected to be added through 2024 will be in healthcare and social assistance. Digital records were hoped to help healthcare productivity but it may not. So if productivity is going to go up in health care and social assistance then prices for services (or utilization of more costly services) may need to increase--not a trend that anyone who pays their insurance premiums wants to see happen. Some industries are experiencing productivity gains in the service sector.

For the curious, here's a comparison list of the Fortune 10 from 2016 and 1999.
2016                       1999
Wal-Mart              General Motors
Exxon Mobil        Ford Motor
Apple                    Wal-Mart
Berkshire Hath.    Exxon Mobil
McKesson             General Electric
UnitedHealth        IBM
CVS Health          Citigroup
General Motors     Altria
Ford Motor           Boeing
AT&T                    AT&T

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