This is the Number One Threat to Long-Term Economic Growth

Amid positive job reports and a surging stock market, one factor still presents a major obstacle to long-term economic growth in the US: a persistent slackening of productivity. We are currently in the midsts of the longest downward slide in worker productivity since the 1970’s, an unfortunate asterisk that should accompany the latest round of job reports. It’s also likely to keep the Fed from raising interest rates any time in the near future.

Productivity by the Numbers

Productivity — the measure of what goods and services a worker produces each hour on the job — fell 0.5% at a seasonally adjusted rate during the second quarter, according to the Labor Department. That marks the third consecutive quarterly drop in productivity, the longest streak since 1979. What’s worse, the trend shows few signs of abating; productivity growth rang in at just 1.7% from 2007 to 2015, half that of 2000 through 2007.

Why Worker Productivity Matters

For business owners, the importance of worker productivity can’t be understated. The equation is simple: less productivity means more expenses and less profit. On a macro level, productivity is a key gauge in measuring wage growth, prices, and overall economic output — which have all been falling as well.

What’s Killing Productivity?

According to numerous studies, lagging productivity has several culprits. Among the most important are businesses unwillingness to invest in new equipment, machinery, and equipment — the raw materials that translate directly into job growth, wage growth, and gains in worker efficiency and productivity. While the exact cause of lagging productivity is difficult to nail down, it’s worth noting that fixed nonresidential investment, the meat and potatoes of business spending, has also dropped the last three quarters along with productivity.

That lack of investment has lead to a decline in new orders for nondefense capital goods on a year-over-year basis for much of the last year and a half.

What’s the Solution?

As we mentioned in our most recent blog, the majority of US manufacturers are small businesses — and many find themselves sorely lacking the working capital needed to invest in their businesses, jump-start productivity, create backlogs, and grow. As a low-risk remedy, manufacturers and other small businesses with strong demand for their products use invoice factoring to boost their cash flow. That’s where Capstone can help!

Grow Your Business with Capstone

For qualified clients, Capstone provides purchase order factoring, single invoice and full-contract factoring for work performed under contract with credit-worthy accounts. We have highly experienced professionals on staff to facilitate the purchase of work in progress and progress billing-related accounts receivable. Please visit our homepage or contact us directly for more information.