Key takeaways:
- The U.S. Labor Productivity Index has climbed for eight consecutive quarters following three quarterly declines prior to Q3 2022. On a year-over-year basis, labor productivity has averaged 2.5% growth for the past five quarters, well above the 1.6% 10-year average. Another productivity metric, S&P 500® revenue per employee, has steadily increased since 2021 after plateauing for the last 15 years.1
- Rising productivity bodes well for corporate margins because it allows businesses to generate more output without needing to add labor or materials that could trigger higher inflation. From a broader macroeconomic perspective, improving productivity also enables sustainable wage growth and consumer spending.
- The uptick in productivity appears primed to continue given the new innovations and AI productivity gains happening across sectors. In looking to capitalize on this trend, two areas standout: First, AI infrastructure providers, which offer enabling technologies like semiconductors and AI services. Second, large-scale companies that can afford to implement these technologies to improve productivity, product development, and customer service, ultimately accelerating profit growth.
1 Source: Bloomberg, as at 30 September 2024.
Source: U.S. Bureau of Labor Statistics, Nonfarm Business Sector: Labor Productivity (Output per Hour) for All Workers. Index 2017 = 100, quarterly frequency, seasonally adjusted. Data as at 7 November 2024.
“Productivity is a key focus for us due to its far-reaching impacts on economic growth and company-level earnings. Looking ahead, we believe advancements in AI will further boost productivity levels and support a healthy economic backdrop. We think it is important to identify companies that are paving the way – those boosting productivity operationally now and developing solutions that will drive gains for decades.”
Jeremiah Buckley, CFA, Portfolio Manager
Technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions. A concentrated investment in a single industry could be more volatile than the performance of less concentrated investments and the market as a whole.