Conventional wisdom may say that surging productivity is bad for job creation, but that doesn't mean falling productivity is good for it.
A government report Tuesday showing a surprise decline in quarterly business productivity in the second quarter was hardly welcomed as a sign of better times ahead for the labor market.
In fact, in some quarters, the 0.9-percent decline after a 3.9-percent gain in the first quarter added to the growing worry that the US economy is in trouble once again.
But once the doom and gloom cleared, economists took a longer view.
"It’s a pretty sharp snap," admitted Robert Brusca, chief economist with FAO Economics, noting that overall job growth weakened in the second quarter along with productivity. "But it's too soon to call this weak productivity."
Slowing down is one thing, falling off a cliff is another.
What's more, the firing of tens of thousands of census workers probably exaggerated the data.
Thus far, productivity is running at 3.9 percent during the first 12 months of the recovery, slightly less than the 4.3 average of the past.
At the same time, private sector payrolls have grown much more in the first 12-months of this recovery—assuming it started last June or July--than they did in the same amount of time after the end of the previous recession in November 2001.
"The kind of productivity numbers we saw over the last year and a half were not sustainable," says Ram Bhagavatula, managing director at the hedge fund Combinatorics Capital. "I would assume if the productivity growth-rate remains slow it will translate into more and more jobs because there is growing demand that has to be met."
July recent retail sales, though hardly strong, illustrate that, says Bhagavatula, who notes that demand continues to be held back by the deleveraging of the consumer's balance sheets.
"Its sluggish growth and not what we are used to," says David Resler, chief economist at Nomura Securities. "In those ways, it is disappointing." The productivity decline "doesn't tell us we're in danger of slippage."