CFO Intelligence Magazine – Winter 2024

Tani Fukui, Ph.D.
Macroeconomist, Director,
MetLife Investment Management

I had a bit of an epiphany a few weeks ago.At a conference a short while ago, I was explaining why the scariest item in my slide deck was a chart about the Fed’s rate hikes. I even had a great analogy to liven things up: I linked it to Top Gun: Maverick, and how Tom Cruise pushed an F-18 so hard that it became structurally unsound. It was great!

No matter how slow that cashier was, he was incredibly productive, since the entire output of that store accrued to him. After a while, companies started to rehire their workers and add new ones to catch up to the big increase in output — this caused productivity to decelerate and eventually decline in 2021 and 2022.
Some of this reversal was inevitable, given the pandemic’s path. But in recent quarters, this decline in productivity started to become worrying. Since the beginning of 2022, we have seen productivity flatten out. The decline in productivity goes hand-in-hand with a decline in profit margins: as labor becomes more costly per unit produced, profit margins get squeezed. Worse than that, the rate of hiring from January through March of this year exceeded the pace of GDP growth. As a result, productivity fell by 2.7% in Q1 2023. Productivity usually slopes upward over time. Obviously, we don’t know where we could have been without the pandemic, but I’ve sketched (in orange) the trend growth of 1.4% that’s been in place since the 2008 recession. As of Q4 2022, productivity levels have fallen back to that pre-pandemic “lower for longer” trend. We’ve given back all of the productivity gains that we reaped during the pandemic.