I haven’t had time to look closely at last week’s GDP data, but as a last post for the year I thought I’d have a very quick look at the productivity (real GDP per hour worked) numbers that the various recent SNZ releases (national accounts and HLFS) suggest.
Over the years, I’ve often used as a proxy – SNZ not publishing an official series – a measure calculated by averaging the two quarterly GDP measures and dividing them by (an index from) an average of hours worked from the HLFS and hours paid from the QES. But in periods of lockdowns you really don’t want to be using hours paid, because things like the wage subsidy schemes were designed to get people paid even if they weren’t able to work, or their firm wasn’t able to generate much output. So in this chart I’ve simply used the average of the two GDP measures and the HLFS measure (self-reporting respondents) of hours worked.
This one starts from back just prior to the 2008/09 recession. As you see, the decade or so leading up to Covid wasn’t a good time for labour productivity growth in New Zealand (something not much more than 0.5 per cent per annum). And then came Covid and all the disruptions (and policy stimulus).
Here is the same chart starting just prior to Covid (2019Q4).
Perhaps unsurprisingly there has been quite a lot of variability in this measure of productivity, in ways that really don’t make a great of sense (to me). There is always some variability – one reason for using average measures – but you can see from the first chart that the last couple of years look quite different, so far. That “so far” is important, as there will be revisions to the GDP numbers for several years to come – although none to the hours numbers (and who really knows how people were answering in lockdowns).
But if you believe these numbers – and I recommend that you don’t – we appear to have found the elixir of New Zealand productivity growth. First take a global pandemic, then shut the borders, ease monetary policy, throw lots of government money at things, mess up the housing market further, compound it all with huge uncertainty from month to month (sometimes week to week).
Something just doesn’t ring true. Sure, people find smart ways of doing things from home, but generally you’d have to assume that if the new ways were so great as to be better than what went before in 2019 they’d have been done then. And no doubt macro policy has given a big boost to overall demand, activity, employment and hours….but this is a productivity measure, and whatever the boost was you’d normally think it would lift demand for people who on average were less productive than what went before.
There are always averaging effects – in lockdowns perhaps some of the least productive people are disproportionately those who can’t work (waiters, motel cleaners etc) – but….the picture was already looking surprisingly strong in Q2 this year, when there were hardly any domestic restrictions.
I just don’t believe that the picture represents reality, and that somehow productivity growth has – after all these decades – started to accelerate. There have been no micro policies working in that direction – rather the opposite – and no one really supposes that forcing businesses not to interact with overseas customers and suppliers etc face to face is good for medium-term productivity. Add to that all the supply chain problems – even the small weirdness that USPS no longer delivers to New Zealand – and it suggests we should be pleasantly surprised if the level of labour productivity now is not lower than it was two years ago. It just doesn’t make sense to think it is so much higher. All else equal, the GDP estimates – and that is all they are, in tough times for measurement and estimation – look too high.
On which note, I will end the blogging year.
It has been a year of many fewer posts than in most since the blog began. That was largely down to me getting a cold back in May 2020 from which I never fully recovered, graduating into what the doctor eventually diagnosed (labelled as) chronic fatigue syndrome. By the standards of what one reads or hears of other people I had a mild version, but for long periods that meant I wasn’t good for much beyond the day to day basics, and sitting in front of a screen for even half an hour was at times astonishingly draining. An attempt to walk much further than round the block could knock me back, sometimes for weeks. I’m still not 100 per cent – still need naps most afternoons – but seem to getting close; perhaps 90 per cent of normal, which is a considerable relief all round.
Having said that I don’t suppose I will drift back into a routine of a post each week day. Posts two or three times a week, supplemented with charts/links on Twitter, seems to be a useful and workable model for now.
croaking cassandra 