The Owl Labs 2023 State of Hybrid Work report sheds light on the dynamic workplace landscape in 2024, unveiling a rich tapestry of terms and trends that characterize the current environment.
### Key Workplace Dynamics and Employee Practices:
- **Adaptation to Remote Work**: Initially facing return-to-office mandates, many companies pivoted towards flexible work arrangements in response to significant employee pushback.
- **Office Environment Strategies**: Companies resort to "office peacocking," emphasizing lavish office setups to entice employees back, despite a growing preference for flexible work locations.
- **Employee Preferences**: While a majority have returned to full-time office work, the data suggests that only a fraction truly prefer this setup, indicating a misalignment between employer mandates and employee desires.
- **Innovative Work Approaches**: Emerging practices like "coffee badging," "shadow policies," job sharing, side hustles, "polyworking," and "calling in healthy" highlight the evolving strategies of employees navigating the changing work landscape effectively.
### Implications and Guidance for Businesses:
- **Employee Needs**: The report emphasizes the significance of factors such as commuting cost coverage, improved privacy in office spaces, defined office schedules, and relaxed dress codes for hybrid employees considering a return to the office.
- **Management and Flexibility**: Businesses are urged to prioritize employee flexibility, address evolving needs, and avoid rigid return-to-office mandates, as revealed by the unmet training requirements for effective leadership in distributed teams.
- **Empowerment and Engagement**: Organizations are encouraged to empower employees to excel in diverse work environments, cultivating a culture of productivity, collaboration, and well-being. By fostering a supportive and adaptable work culture, businesses can enhance productivity, bolster recruitment efforts, and boost overall employee engagement.
Since the start of the pandemic, productivity has been somewhat erratic. It fell by 1.09% on average per quarter from 2021 through 2022, the worst two-year stretch in four decades. But over the past year, labor productivity has advanced by 1.62% on average per quarter, a significant reversal and even better than the pre-pandemic period of 2015 to 2019. There are signs, however, that the US could be on the verge of an even bigger productivity boom.
The case for a productivity boom
Last year, though supply-chain snarls and other COVID-era knots had been disentangled, plenty of firms still expected the economy to go into recession, and so they curtailed their investments in new equipment and big capital projects. Conditions so far in 2024 are much improved — recession risks have receded, and corporate confidence has recovered. There are signs that this is, in turn, inspiring companies to invest more in productivity-enhancing capital projects:
The S&P Global US Manufacturing Purchasing Managers' Index points to strengthening durable goods orders. The new-orders component — which measures how much new product managers expect to be ordered in the months ahead — has climbed to 53.5, the highest since May 2022. Globally, conditions appear to be perking up as well.
The US is importing more capital goods. January's trade data indicates imports of real capital goods rose by 3.8% month over month. Over the past six months, they've increased by 9.6% at an annual rate. Ultimately, imported capital goods will be used for domestic production.
Stocks are up. A rising stock price means stronger balance sheets and more collateral against which to borrow. So during a boom, there's a positive feedback loop: Rising stock prices and easier lending standards accelerate the impact on investment.
Capital spending also benefits from an accelerator effect. If companies perceive the economy as getting better, they're more likely to spend more on capital goods to meet the expected increase in demand. So when GDP growth accelerates, investment tends to rise even faster, which should push up productivity down the line.
The Owl Labs 2023 State of Hybrid Work report provides valuable insights into the ever-evolving workplace dynamics of 2024, offering a comprehensive view of the trends and terms that define the current environment.
Key Workplace Dynamics and Employee:
Adaptation to Remote Work: Initially encountering resistance from employees about return-to-office mandates, many companies pivoted towards flexible work arrangements.
Office Environment Strategies: Companies resorted to "office peacocking," highlighting extravagant office setups to lure employees back despite a growing preference for flexible work locations.
Employee Preferences: While a majority have returned to full-time office work, the data suggests that only a fraction truly favor this setup, indicating a disparity between employer mandates and employee desires.
Innovative Work Approaches: Emerging practices such as "coffee badging," "shadow policies," job sharing, side hustles, "polyworking," and " in healthy" underscore the evolving strategies of employees navigating the changing work landscape effectively.
Implications and Guidance for Businesses:
Employee Needs: The report emphasizes the significance of factors such as commuting cost coverage, improved privacy in the office, defined office schedules, and relaxed dress codes for hybrid employees considering a return to the office.
Management and Flexibility: Businesses are urged to prioritize employee flexibility, address evolving needs, and avoid rigid return-to-office mandates, as revealed by the unmet training requirements for effective leadership in distributed teams.
Empowerment and Engagement: Organizations are encouraged to empower employees to excel in diverse work environments, cultivating a culture of productivity, collaboration, and well-being. By fostering a supportive and adaptable work culture, businesses can enhance productivity, bolster recruitment efforts, and boost overall employee engagement.
Rising productivity lifts all boats
If productivity is indeed turning up, economists and market experts haven't fully processed the news yet. Looking at a chart of Blue Chip Consensus estimates for GDP growth back to the early 1990s, a few trends become clear. First, the consensus tends to underestimate the severity of recessions, so economists have to quickly revise their estimates during downturns. Second, the consensus tends to be too pessimistic as the economy recovers from the recession, which is why we see upward revisions to growth immediately after a recession. And finally, there are long periods when surprises tend to flow in the same direction — a string of years when economists are consistently underestimating or overestimating growth. This tends to happen when the growth trend changes and economists are mismeasuring the change in productivity.
Productivity shocks tend to come in waves. The 2010s, when productivity consistently fell short of expectations, was a period of chronically overestimated growth: The consensus would start the year at about 3% but end up at 1.5% or 2%. By contrast, the late 1990s were a period of higher productivity growth and underestimated growth, starting the year at 2% but ending closer to 4%.
These historical examples are worth thinking about today because growth expectations are climbing. Blue Chip consensus expectations for 2024 real GDP have jumped, tripling since last summer, to 2.1% from 0.7% in June. Unsurprisingly, recession fears have collapsed. Professional forecasters now see just a 23.9% chance of a drop in real GDP in the next quarter, down from nearly 50% this time last year. If we're seeing a genuine increase in productivity, the takeaway is that it's unlikely to be fleeting. If the past is prologue, the consensus will consistently be revising up growth estimates.
The AI boom isn't here — yet
The media is littered with discussions about how AI is going to send productivity into hyperspeed. But it's probably too soon to be thinking about these factors as the main driver of recent productivity growth. That's an important part of the productivity paradox. Productivity miracles don't necessarily follow a technological breakthrough right away. It takes time for the technology to make its way through the economy and time for workers to gain the skills needed to make the most of it.
The good news is that the normalization of the economy — improvement in supply chains, and balanced labor markets — is likely to result in continued improvement in business-sector productivity growth. I think "normal" is about 1.5% to 2%. There's likely some improvement on the horizon as capital spending outpaces hours worked; as a result, we'll get a bit more capital deepening this year.
The investment implications of this are clear: Stronger productivity growth implies a higher speed limit for the economy. Wages can grow somewhat faster without pressuring firms to raise prices — a positive development for the Fed, at least in the short run. On the flip side, neutral rates might be somewhat higher as a result. For stocks, stronger productivity should be welcomed, implying more growth with stronger profit margins.