Weekly Market Insight

June 8,2009

Nonfarm Business Productivity

% Change Quarter Ago, Seasonally Adjusted Annual Rate

Usually during a recession, labor productivity decreases as businesses only gradually reduce payrolls to match their reduced order flows. During the current recession, however, labor productivity has remained strong because businesses have been unusually quick to implement staff layoffs, particularly late last year when the commercial paper market froze – a source of short-term borrowing used by many firms to manage their cash flows. Seeing their immediate liquidity at risk, employers quickly reduced staff. The flip side of the coin is that businesses could be quick to rehire when their order flows pick up because they have already cut staff to subsistence levels. A sluggish "jobless" recovery is the most likely scenario, but continued productivity growth raises the possibility of a stronger-than-expected rebound next year. For commercial real estate, a brisker rate of job growth during the next expansion cycle would, of course, be welcome news.

Source: Bureau of Labor Statistics, Grubb & Ellis

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