Despite a slowdown in world productivity in 2008, output per hour worked in the United States increased slightly by 1.7 percent, up from 1.5 percent in 2007, according to the latest annual productivity report issued by The Conference Board, the global business membership and research organization. The most recent productivity advances have been realized, however, through rapid layoffs, suggesting that the productivity of remaining workers and firms is actually strengthening.

U.S. productivity growth is expected to slow to 0.5 percent in 2009, but may improve during the second half of the year. "This will provide an opportunity for improved competitiveness of U.S. firms when the recovery starts," says Bart van Ark, Vice President and Chief Economist of The Conference Board. The Conference Board quarterly GDP forecast suggests that the United States may reach the trough of the recession by mid-2009. Innovation remains a crucial trigger for growth and recovery, the report says. "But it requires continued investment in capital and labor - not just job cuts - which is a big challenge in the current economic climate," van Ark adds.

WORLD PRODUCTIVITY FALTERS

The Conference Board's productivity report shows that world productivity growth slowed sharply in 2008 and is set to decelerate further this year as the global recession deepens. Global output per hour worked rose by 2.3 percent in 2008, down from 3.7 percent in 2007. It is expected to slow further to 1.8 percent in 2009 - the weakest productivity growth since 2001. This dramatic deterioration in the production efficiency of goods and services reduces the potential to raise wages, reduce prices and support an increase in living standards, the report warns.

Europe suffered a dramatic slowdown in productivity growth, with many European firms slow to reduce headcount in response to falling output. Productivity growth across the 27-member European Union fell from 1.3 percent in 2007 to just 0.2 percent in 2008 and is expected to come to a complete halt in 2009. The gloomy prediction comes a week before The Conference Board launches a new, monthly Euro Area Leading Economic Index, which will signal forthcoming peaks and troughs in the business cycle of the 16-nation bloc.*

The effects of the deteriorating world economy on productivity across emerging economies differed widely, depending on each country's exposure to international trade and global finance, dependence on natural resources and the fiscal resources at the government's disposal. Brazil, for example, benefited from the commodity boom and improved export performance early in the year and saw productivity growth increase from 2.3 percent to 3.7 percent. In contrast, China's productivity growth fell from 12.1 percent to 7.7 percent as a result of a drop in exports and investment.

U.S. PRODUCTIVITY GROWTH GOES TOGETHER WITH JOB CUTS

The slow increase in output per hour in the United States at 0.5 percent in 2009 takes place on the back of a 1.7 percent decline in GDP growth and a drop in total hours worked of 2.2 percent. While output growth may move back in positive territory during the second half of the year, job losses are likely to continue. Productivity is likely to recover in the second half of the year, providing an opportunity for improved competitiveness in U.S. firms.

Van Ark says: "Productivity is typically pro-cyclical, increasing during upswings and slowing or even declining in a downturn because labor is worked harder during booms than busts. Looking ahead, innovation remains a crucial trigger for productivity recovery and growth."