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Rising worker productivity is a good omen for the US economy that could help address the country’s recent bout of inflation, Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, said.
“That’s the little-known secret that no one talks about,” Schutte told Yahoo Finance Live. “In the U.S. economy, productivity is rising. That’s a really good thing because that increases the amount that we can pay our workers, makes the US economy grow faster, and keeps inflation at bay.”
A recent Goldman Sachs (GS) analysis found that the COVID-19 pandemic increased productivity by speeding up the digitization process within the workplace. The increase in employees working from home cut down on commuting times and raised worker productivity by 5%.
Wages have been on the rise recently, though inflation threatens to neutralize workers’ gains. Average hourly earnings rose 3.6% year over year in June and 5.7% in the leisure and hospitality sector. Meanwhile, the latest CPI numbers released earlier this week identified a higher-than-expected inflation rate of 5.4%.
However, Schutte said, the Fed remains unlikely to raise rates any time soon. With millions still unemployed and wages on the rise, the Fed believes it's premature to reduce support for the economy.
“I do think longer-term, though, wages are set to rise still,” Schutte said. “Based upon our calculations there’s still about 12.5 million more people that need to be hired and brought back into the labor force. When that actually occurs, sometime hopefully more towards the end of 2022, 2023, then you can worry about inflation being more persistent and the Federal Reserve hiking [rates]. Until then, the slack is going to bring inflation back down, the Federal Reserve is going to remain on the sidelines until all those people come back into the labor force and get hired.”
Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.
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