The Productivity Lid

On April 24th, the BLS released its annual report, “Productivity and Costs by Industry: Manufacturing & Mining Industries,” with data for 2024 (HERE).

This adds another clue to the broader mosaic suggesting that the productivity cycle—which has long benefited consumers at the expense of industry—may be nearing its final leg.

Here are a few key quotes from the report as they relate to the oil & gas sector with emphasis added:

• “Oil and gas extraction had a productivity gain of 0.2 percent due to a 2.1-percent increase in output and a 1.9-percent increase in hours worked.”

• The greatest productivity growth among mining industries from 2019 to 2024 occurred in oil and gas extraction (+5.3 percent per year).

• Output increased from 2019 to 2024 in two mining industries. The greater increase in output occurred in oil and gas extraction at 1.8 percent per year. Coal mining had the largest decline in output (−6.7 percent per year) from 2019 to 2024.

• During the 2007-2019 period, productivity increased in 35 industries. Of these industries, only five had simultaneous growth in output and hours worked. Oil and gas extraction had the greatest growth in output over this period (+7.0 percent per year)

As you can see from the chart below, labor productivity was relatively flat in 2024. And if you look at the chart on the right, you’ll notice that despite record production volumes last year, labor productivity growth is clearly decelerating.

But the U.S. oil and gas industry is far less labor-intensive than it was a decade ago. That’s why I’ve included other BLS metrics in the chart above—namely, capital productivity and the more comprehensive total factor productivity (TFP). The latter is widely regarded by economists as the gold standard for measuring productivity since it is inclusive off all inputs.

While 2024 data for capital productivity and TFP haven’t been released yet, we already see a divergence: labor productivity is slowing, but capital productivity—and by extension, TFP—has yet to roll over.

Now, for long-term oil bulls like myself, a future decline in these metrics would actually bolster our case. Meanwhile, the bears are hoping to see these lines continue to trend higher—pointing to continued efficiency gains and lower cost which translates into lower oil prices.

I like to track productivity my own way by using company-reported data from annual reports. It’s a simple formula: total output (oil and gas) divided by the average producing well count. The chart below gives a snapshot of how that’s playing out.