Last Friday, Jim Paulsen, a strategist from Wells Fargo whose work I like, gave an interview with CNBC about productivity. His take: US productivity is being substantially understated.
The interview contains an interesting chart–one well worth checking out–in which Mr. Paulsen tracks a measure of wage growth with one of productivity. Historically, the two have moved in tandem …until 2012. At that time wage growth begins to accelerate …and productivity starts to drop like a stone.
His argument is that if the productivity figures are as bad as they look, employers would never be raising wages at anything like the rate they are.
To get his results, Mr. Paulsen has had to do two things: he uses real (meaning after inflation is subtracted) wage growth and productivity; and he uses deviation from trend (sort of like a rate of change) rather than the wage and productivity figures themselves.
As a general rule, I don’t like charts (because you can manipulate the axes to add or subtract drama), and I worry when the key relationships are in derivative data. Still, I think the Paulsen argument is right. Wages are rising in a way that strongly suggests there’s something wrong with the official productivity calculations.