Strong growth but still no productivity rebound

While the latest activity surveys suggest that the recovery might have gathered pace in the second quarter, a revival in productivity has remained elusive. Indeed, firms are hiring workers in record numbers – Q1’s 283,000 quarterly rise in employment was the largest since the Labour Force Survey began in 1971 and the annual growth rate of employment has been far stronger than one would have expected given its past relationship with GDP growth. But while output per worker has flat-lined recently, it should still pick up soon. Surveys of investment plans have strengthened, while the gradual easing of credit constraints should enable efficient firms to expand. As a result, we still think that productivity will recover, enabling the recent strong period of expansion to be sustained.