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Declining Productivity 230523

Under the guise of “it’s different this time”…there’s reasoning that we’ll avert a recession because unemployment is so low (near 60 year lows).

I can see the logic of that argument because workers are flush with cash and you can always count on the American consumer to spend until they’re beyond broke.  Several years ago I made a video explaining that it’s not the unemployment rate that’s critical to predicting a recession but rather the INCREASE in the RATE of unemployment.  [ https://www.youtube.com/watch?v=4nlI25lTgOA ]

The extremely low levels of unemployment might persist because of a convergence of trends- aging boomers, immigration constraints, and low participation rate.  So, is it different this time?  Will we dodge a recession and an accompanying bear stock market because employment remains strong?

Maybe not…

Regardless of employment rate, the economy is experiencing a very unusual and disturbing trend- declining productivity.

Note the below chart.  All the efficiency gains achieved during the early phase of the Pandemic have receded.  This is extremely unusual and concerning because in a developed economy, growth is almost exclusively derived from productivity improvements.

I believe that a major contributor to the current weakening of corporate profits can be largely attributed to this decline in productively.  So even if unemployment doesn’t significantly increase, I believe a recession (or at least a steep market selloff) is still highly likely.

So why is the S&P 500 doing so well?  More about that in the next post.

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