As we have been arguing all along that productivity improvement is key to survival for American businesses, today's data clearly shows that businesses are doing the right things. In all segments of the economy, productivity showed impressive gains. In fact, compared to previous quarter, productivity in manufacturing improved by as much as 7.5%. We believe that productivity improvement will be the single-most important determinant of American competitiveness in the global market.
Areas of concern
Rising labor costs: Interestingly enough, unit labor costs are going up in business and non-farm business sectors but declining in manufacturing. Considering that we are largely a service economy, this is a serious concern for us. It seems as if after cutting workforce to the bare minimum needed, companies are having to pay a lot more to the employees that they have on the payroll. The result could be lower corporate profits and incentive to seek offshore locations with lower labor costs.
Inflation: Prospects for rise in inflation is another area of concern. Not only does it mean higher interest rates, it also has an adverse impact on the dollar and our competitiveness in the global market.
Suggestions for businesses
It is not possible to improve productivity indefinitely and after a certain level it becomes economically unattractive (using the same resources). However, it is possible to make productivity improvements by change of business model (e.g. by portfolio management, technology upgrades, outsourcing, offshoring, etc.). Therefore, do not just look at your existing system but think beyond it to see what else can you do to transform your business model to improve productivity.
Related article: How to develop a new business model?
Areas of concern
Rising labor costs: Interestingly enough, unit labor costs are going up in business and non-farm business sectors but declining in manufacturing. Considering that we are largely a service economy, this is a serious concern for us. It seems as if after cutting workforce to the bare minimum needed, companies are having to pay a lot more to the employees that they have on the payroll. The result could be lower corporate profits and incentive to seek offshore locations with lower labor costs.
Inflation: Prospects for rise in inflation is another area of concern. Not only does it mean higher interest rates, it also has an adverse impact on the dollar and our competitiveness in the global market.
Suggestions for businesses
It is not possible to improve productivity indefinitely and after a certain level it becomes economically unattractive (using the same resources). However, it is possible to make productivity improvements by change of business model (e.g. by portfolio management, technology upgrades, outsourcing, offshoring, etc.). Therefore, do not just look at your existing system but think beyond it to see what else can you do to transform your business model to improve productivity.
Related article: How to develop a new business model?