*Recovered Post* US Productivity Increases - But How?

*This is a recovered post from December 6, 2005 at 5:33 PM*

Business productivity in the United States at a 4.7 percent annual rate in the third quarter, the largest increase in the indicator in over two years. This figure seems positive, right? Well, there is no way to physically measure the idea of producivity as a whole, so how does the US Labor Department comprise this number?

The answer lies in a few underlying measures the US Labor Department measures separately. The first of these is the demand for durable goods, defined as goods that are meant to last more than three years, such as automobiles. This measure increased 3.7 percent over this period. Another measure that is factored into the productivity calculation is the measure of shipments of complete goods from factories. This measure rose 1 percent in the period. Although numerically these add up to the 4.7 percent mentioned above, a couple of other measures exist that factor into the productivity measure.

The Labor Department has a measure of unit labor costs for durable goods in the United States. This measure compares the standard wage of an employee in various industrial fields with the unit cost of production of an item. The change in the wager rate over the course of a quarter is measured against the change in the unit cost of the items being produced by that employee. This comparison can measure productivity in that the unit labor cost is lowered, even if the wage rate increases, if the production of an item increases enough.

In addition, there is a ratio measured known as the inventories to shipments ratio, which measures how long it would take to deplete standing inventories at the current rate of sales for durable goods in the US. This rate, which stood at 1.17 months in October, indicates to producers whether or not to increase production of goods in industrial fields, thereby allowing the producers to artifically create higher productivity within their businesses.

All of these factors contribute to the single measure mentioned above, the 4.7 percent increase in productivity in the US. And this, indeed, is a very positive number.