The stars are aligning for a game-changer for workers, corporate america, and the Fed: A rise in U.S. productivity.
Tightening labor markets, a strong dollar, and looming rate hikes all pave the way for a rise in the efficiency of U.S. economic output, Deutsche Bank AG strategists led by Binky Chadha wrote in a report on Tuesday. “The historical drivers look to be aligning for an inflection up in productivity growth,” the analysts write. “Throughout history productivity growth responds strongly to economic conditions, i.e., the corporate sector raises productivity when it has to or needs to.”
The team cites a pick-up in income growth — with the yesterday’s data showing that median inflation-adjusted U.S. household income rose 5.2 percent in 2015 — as bullish for productivity.
We note that productivity increases and real wage increases are strongly positively correlated. The correlation of course does not establish causation and while many see low productivity growth as the driver of low wage growth, we see a tight labor market encouraging wage growth that in turn fosters productivity. growth.