Welcome to 2025 and to the new administration in the White House. We are about 24 hours into Trump 2.0 and it has been a struggle to keep up with the flurry of executive orders. Then this morning I got a survey from the Bureau of Labor Statistics. It was actually a warning/reminder that I hadn’t filled out my survey. I don’t remember getting it the first time, but ok. I have done this survey once or twice since becoming a small business owner in 2015, so I clicked into the survey to provide our data.
What I found was a good number of new questions on the use of Artificial Intelligence and the number of hours and ability of staff to work remotely vs in the office. That got me to thinking about productivity.
This is the series on non-farm business productivity in the U.S. going back to 1948. It’s measured through dividing an index of total output by the number of total hours worked by the workforce including employees, owners and non-paid family, basically trying to capture everyone involved in a given business operation.
The most striking thing about the chart is the way productivity jumps after each recession, which are shown by the gray bars. That makes sense because job losses during recessions lead to hiring during rebounds. But then we have the strange patterns that show up in the most recent years.
Productivity really didn’t go down despite the job losses related to the pandemic. Instead, it surged and didn’t go negative until well after in 2022. Here is a detailed look:
Was the decrease in productivity simply delayed?
There were a lot of job losses as the economy shut down in 2020, but at the same time, there were a lot of workers who simply switched to remote work. Could that have caused an increase in productivity? It’s possible.
Another way to look at the decrease in productivity in 2022 is through the statistics on new business formation after the pandemic. Not only were people on lockdown converting hobbies into professsions, but the job market strengthened coming out of it and as people felt more comfortable, more decided to branch out and start their own businesses. From 2018 to 2020, new business formation was averaging about 250,000 per month. But since 2021, the monthly average has been well above 400,000, according to the Census Bureau.
As a new business, productivity is likely to be fairly low at the start and it takes time to bring on new employees. But for successful businesses both of those numbers should tend to go up as time goes by. Could that explain the decrease and rebound outside of the historic pattern? Add in a new technology like Artificial Intelligence, and you have the recipe for a lot more output. So maybe we’ll start to see the productivity number really begin to rise, despite the last two small quarterly declines.
That said, one of the many executive orders signed yesterday was a requirement for all federal employees to cease remote work. And last week, there were at least two big banks that also announced a return-to-office policy for all employees.
Time will tell if the productivity boost of 2020-2021 had anything to do with remote work, or if all the investment in AI and in new business formation will drive output.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.