Private payroll growth declined sharply in January, a possible sign that the U.S. labor market is heading for a slowdown this year, ADP reported Wednesday.
Companies added 107,000 workers in the first month of 2024, off from the downwardly revised 158,000 in December and below the Dow Jones estimate for 150,000, according to the payrolls processing firm.
Only one sector — information services (-9,000) — reported a decline, but hiring was slow across virtually all sectors.
Leisure and hospitality posted the biggest increase, with an addition of 28,000 workers, while trade, transportation, and utilities added 23,000, and construction rose by 22,000. Services-providing companies were responsible for 77,000 jobs, with goods producers adding the rest.
The release comes two days ahead of the Labor Department’s nonfarm payrolls report, which is expected to show growth of 185,000, against the 216,000 increase in December. While the ADP data can provide a barometer for private sector hiring, the two reports often differ, with ADP often undershooting the Labor Department’s numbers.
On wage gains, ADP reported a 5.2% annual rise, a number that has run above the government’s measure of average hourly earnings.
“Wages adjusted for inflation have improved over the past six months, and the economy looks like it’s headed toward a soft landing in the U.S. and globally,” said ADP’s chief economist, Nela Richardson.
Midsize establishments, with between 50 and 499 employees, led job creation, adding 61,000. Small businesses added just 25,000.
When Elon Musk took over Twitter Inc. in October 2022, he bemoaned what he saw as its bloated ranks of software engineers, according to Walter Isaacson’s biography. If all 2,500 of them wrote just three lines of code each per day, he reasoned, that would be “enough for a whole operating system.”
It was the prelude to mass layoffs at the social media company, now known as X. But Musk ended up asking some of the fired workers to come back—effectively acknowledging that the calculus of inputs and outputs wasn’t as simple as he’d made out.
How to even measure productivity, let alone make it better, is a big question corporate chiefs and economists are trying out new ways to answer. Getting it right has rarely been more important. Productivity numbers may well be what settles the fight between bosses and employees about whether work-from-home really works—and determines whether artificial intelligence technologies live up to the hype or prove a bust. In the wider economy, all kinds of worries, including problems associated with aging populations and mounting debts, could potentially melt away if only businesses can get productivity running at a decent clip.
The concept involves measuring how much output workers can produce in a given time with the available technology. The US government’s official gauge is derived from aggregating data such as hours worked and pay across various industries. That’s where the trouble starts, says Jason Furman, a professor at Harvard University and former head of the White House Council of Economic Advisers. “Productivity is perhaps the most volatile major economic statistic,” he says. “It takes an error-prone numerator—output—and divides it by an even more error-prone denominator—hours.”
For that reason, experts look beyond just quarterly and even yearly fluctuations in productivity. Some of the pandemic-era numbers are especially misleading. Early 2020, for example, saw a productivity surge unmatched since 1947—but there was nothing to celebrate, just mass layoffs in which less-productive workers were the first to be fired. Likewise, it’s too early to read much into the jump of 5.2% in the most recent quarter, more than triple the recent average.
US Productivity: Short-Term Noise
Since Covid hit, the quarterly numbers for productivity have been even more volatile than usual, featuring some of the highest and lowest readings on record
Source: Bureau of Labor Statistics
“It’s tough to measure, even in the rearview mirror,” says Adam Ozimek, chief economist at the Economic Innovation Group. “There are still, today, economic historians debating what happened to productivity growth in the 1940s.” (At this month’s annual gathering of the American Economic Association in San Antonio, one session explored the productivity impact of America’s rubber shortage during World War II.) There's plenty of timelier work, too: a recent study tries to hone productivity measurements by looking at the European debt crisis and the introduction of the 35-hour week in France
‘Huge’ Benefits
There are several reasons why these old puzzles have taken on a new urgency. The emergence of hybrid work as the dominant model at most white-collar businesses has bosses scrambling to figure out the optimal blend of remote and in-office collaboration. And they have to decide how generative AI can enhance worker productivity—typically a hit-and-miss business with new technologies. A recent study of 758 Boston Consulting Group analysts using ChatGPT found there were “huge performance benefits” for some tasks, while others were more easily performed without it. Employees at tech-focused venture capital firm 776, headed by Reddit co-founder Alexis Ohanian, are using AI to draft press releases and automate data entry.
Beyond the boardroom, productivity may become more important as population growth in developed countries slows down, making it harder to rely on an expanding workforce for economic growth. And societies are aging. In 1920 just 1 in 20 Americans was 65 or older. Now that’s 1 in 6. There’s concern about how a smaller share of workers will provide for a larger share of retirees. Productivity growth at a decent clip would make the task much easier.
US Productivity: Long-Run Trends
It was moving higher in the years before Covid upended the numbers
Source: Bureau of Labor Statistics
Another trend to account for is the economy’s shift from churning out goods to services, which complicates the calculation. It’s easier to assess the productivity of a worker at an auto plant than one engaged in, for example, home care for the elderly—an industry that’s projected to be among the biggest sources of US job growth in the coming decade. Some measures rely on simply asking people if they feel productive, or counting emails sent or lines of code written.
At the business level, yardsticks for desk workers vary. Those in professional services, such as consultants, are measured by “utilization”—the ratio of billable hours to total time worked, along with project outcomes and client satisfaction. For tech workers, it’s all about the dueling acronyms of KPIs (key performance indicators) and OKRs (objectives and key results). KPIs, like the number of software bugs fixed, are granular and specific to each role, while bigger-picture OKRs ensure that individual goals align with the company’s broader strategy. But if you’re a middle manager at a tech giant, productivity could be gauged by how many people work under you—an incentive to overhire.
‘Feeling Good’
The confusion over what productivity means isn’t just an abstract problem for economists; it can also foment distrust inside an organization. A recent example: Almost 9 out of 10 workers polled by Microsoft Corp. in 2022 reported being productive, but just 1 in 10 leaders in the same survey expressed confidence that their own teams were firing on all cylinders.
That’s likely because both groups have their own distinct definitions of efficiency. For chief executive officers such as Meta Platforms Inc.’s Mark Zuckerberg and Jamie Dimon at JPMorgan Chase & Co., it typically means seeing actual butts in seats, while for employees, productivity is often a more abstract feeling of accomplishment.
Is Working From Home a Help or a Hindrance?
Three times more people said working at home helped productivity than said it hurt
Source: Survey of Working Arrangements and Attitudes: Nicholas Bloom, Jose Maria Barrero, Steven J. Davis
That gap is fueling arguments over work-from-home. Research on the productivity impact often focuses on small slices of the white-collar world—Indian data-entry workers, say, or Chinese call-center staff—and can’t be generalized. Notably, not having to commute makes remote workers feel more productive, but their bosses don’t recognize that as any sort of gain. A recent paper from the Federal Reserve Bank of San Francisco examined 43 industries and found there’s “essentially no relationship” between working from home and productivity.
It’s all gotten so muddled that one efficiency expert made a splash last year with a book that simply argued that “feeling good” was the best path to productivity.
“It’s such a funny thing that clearly does not measure what it purports to measure,” says Julia Pollak, chief economist at job site ZipRecruiter. “Companies are investing time, money, and thought on doing this better.”
Performance review season is upon us; in fact, I need to dash off my self-evaluation after I wrap up this newsletter. This got me thinking about my own productivity — and yours, too! How efficient are you on the job, really? What about your teammates, your direct reports and (gulp!) even your boss?
If those questions tie you in knots, you’re not alone. Our featured story today is about the dreaded “P” word, and how measuring — and enhancing -- productivity has confounded CEOs, policymakers, and economists for decades.
Getting it right has never been more important. Productivity looms large in many of the biggest business debates of the moment, whether it’s the battle over remote work, the promise, and peril of artificial intelligence, or the push to boost minimum wages for millions of hourly workers across the nation.
A deep dive into the available data, which usually helps illuminate things, in this case only makes the picture murkier. Some of the pandemic-era productivity numbers are especially misleading. Early 2020, for example, saw a productivity surge unmatched since 1947 — but there was nothing to celebrate, just mass layoffs in which less-productive workers were the first to be fired. And it’s way too early to read much into the recent quarter’s jump of 5.2%, more than triple the recent average.
US Productivity: Short-Term Noise
Since Covid hit, the quarterly numbers for productivity have been even more volatile than usual, featuring some of the highest and lowest readings on record
Source: Bureau of Labor Statistics
Looking at sector-specific productivity, an approach championed by economists such as the University of Chicago’s Chad Syverson, can help, but get ready to wade through a sludge of confusing jargon. Every industry, it seems, has its own language of efficiency, each of them confusing in their own way. KPIs, OKRs, utilization rates — oh my.
So where do we go for some honest answers? Well, you can start here. My Work Shift colleagues and I hope to unpack the productivity puzzle this year with a bunch of insightful stories.
We’ve got a slew of ideas already, but real-world examples help, so reach out and let us know how your organization is tackling the issue, or if there are experts on the topic we should know about. Here’s to a more productive 2024!
By the Numbers
US child-care prices run parents $40,000 a year on average, and only a handful of workplaces are stepping in to help families shoulder the cost. Is yours one of them?