On Friday, we’ll devour the monthly Employment Situation report from the Labor Department. We tend to call it the jobs report. But Thursday, there was an economic data appetizer. In the second quarter of 2024, productivity grew at an annual rate of 2.3% — more than economists were expecting.

We generally like to see productivity growth because it means we’re making more without working more. Real wages — that’s compensation adjusted for inflation — also grew, meaning that as inflation has cooled, workers have seen their pay play catch-up.

A 2.3% productivity growth reading is nothing to sneeze at, said Luke Pardue, policy director of the Aspen Economic Strategy Group.  

“The productivity growth that we’ve been seeing has been central to the soft landing,” he said.

The tight labor market has contributed to productivity growth, he said. That’s because businesses have had to lean on the employees they already had to pick up extra work. 

“Productivity growth is about as close to a free lunch as you can get in the economy,” Pardue said. “That’s because when workers become more productive, businesses are able to produce more without hiring more workers. And so they see higher revenue, which they can then reinvest in the business or pay workers higher wages without needing to raise prices.”

And workers are receiving higher wages, especially in manufacturing, even when you adjust for inflation.

But Texas A&M economist Dennis Jansen said for many workers, pay is still lagging inflation. “Real wages have been a little better than glacially, but gradually creeping upward and so this big decline is going away, but it’s taking a long time,” he said.

And boy, are we ready for it.

“If real wages are increasing, but it’s in the context of an inflationary environment, inflation can harm them in other ways. It depletes nominal savings, wealth,” said Zach Bethune, an economics professor at Rice University.

But inflation is down — with prices increasing 3% in the 12 months through June, according to the consumer price index. 

And for anyone who fears the wage increases in Thursday’s data could be passed down to consumers, Duke University economics professor Gregor Jarosch has good news.

“Wage growth is actually pretty reflected by relatively high productivity growth. In that sense, I don’t think there’s the sort of, like, purely nominal wage increases that are, you know, not reflected in productivity that could feed back into prices,” he said.

In other words, because productivity has increased alongside wages, Jarosch is not worried about the dreaded wage-price spiral.

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