Is The US Economy Getting Worse? A Look At Worker Productivity After Trump Tax Cuts

The Labor Department said Wednesday that productivity among U.S. workers fell 0.3% in the third quarter, the first time since 2015. Productivity measures the output of a worker for every hour they work. Analysts had forecasted an increase of 0.9%.

Among manufacturers, productivity fell 0.1%, a decrease for the second straight quarter as the U.S.-China trade war continues.

Some economists, along with the White House, expected worker productivity would rise following the passing of the 2017 Tax Cuts and Jobs Act. Jim Glassman, the head commercial banking economist at JPMorgan Chase & Co., argued that "a tax bill that stimulates the economy could create a productivity boom as the peak of the business cycle approaches."

Other economists have blamed increasing smartphone use among workers for sluggish productivity.

In the third quarter of 2019, the economy grew by 1.9%. The reasons why the economy is growing at a slower rate is likely due to trade tensions and the slowdown of the American manufacturing sector. In September, the ISM manufacturing purchasing managers' index — an indicator of the health of the manufacturing sector — was at its lowest point in 10 years.

The Federal Reserve under Chairman Jerome Powell has lowered interest rates several times over the past months in order to stimulate the economy and to jumpstart consumer spending.

If the U.S. economy starts to grow faster again, productivity might increase as a result. Justin Lahart of the Wall Street Journal noted that "productivity really matters for the economy now" but expressed some long-term optimism.

Lahart explains that "rising labor costs may now be providing companies more reason to invest in productivity. Wednesday’s productivity report showed that unit-labor costs—a measure of how much businesses compensate workers for their output—were up 3.1% in the third quarter from a year earlier, registering the strongest growth in over five years. That could provide companies with an incentive to invest in new equipment, as well as training their current workers to become more productive."

While others believe the economy is mostly strong, there have been other indicators that show that it is slowing. A report Thursday from the Commerce Department showed consumer spending increased just 0.2% in September while wages were unchanged.

An Economist/YouGov poll in August showed that 33% of Americans believe the economy is getting worse.