One of the most important questions for the economy in 2024 is whether the surge in worker productivity that occurred in 2023 will prove to be both real and durable.

Why it matters: The answer will determine whether last year's combination of robust growth and falling inflation can continue, driving Americans' incomes higher and giving the Federal Reserve a green light for interest rate cuts.

• While some Fed officials are skeptical that the productivity surge will continue, there are some signs that it is fueled by economic fundamentals facing corporate America — particularly a scarcity of workers — in which case it could have room yet to run.

The big picture: Productivity is the dark matter of economics: a tremendously important concept that is not deeply understood at the microlevel.

• Labor productivity is a residual of how much economic output is generated for every hour of work.
• Measurements are volatile and imprecise, and economists don't claim to know with certainty what is happening at the level of corporate decision-making that causes productivity to rise or fall.

State of play: With the unemployment rate below 4% for more than two straight years and the baby boomer generation retiring from the workforce, companies may have a greater impetus than in the recent past to find ways to squeeze more output out of their workforce.

• That can include capital investments — relying more on software and machinery — or changes to training, work processes, or how individual workers and employers match with each other.
• In effect, worker scarcity creates upward pressure on wages, which in turn puts pressure on companies to achieve productivity gains commensurate with those higher wages.

What they're saying: "Right now most companies don't feel like they have anywhere near the pricing power that they had a year or two ago," Rich Lesser, global chair of Boston Consulting Group, tells Axios. "And yet wages continued to go up 3 or 4%."

• "I think that puts a productivity challenge into the mix. It also puts more pressure on innovation and finding new ways to drive growth."
• For example, he recently met with an executive for a quick-serve restaurant chain in California, who intends to grapple with a new $20 per hour minimum wage there by cutting staffing and adding checkout kiosks.

The bottom line: "To accelerate the productivity engine, technology is often the fuel, but labor and wage pressures are the spark," says Lesser. "Right now we have both."

New data shows businesses' demand for some capital investments is cooling — a spending slowdown that has implications for economic activity.

By the numbers: Factory orders rose 2.6% last month, up from the 0.7% increase in February (a weaker gain than initially estimated), the Commerce Department said.

• But that surge in March reflected a 30% jump in commercial aircraft bookings, thanks to more orders of Boeing planes relative to February, as customer demand rebounded in the aftermath of the company's latest crisis.
• Economists watch more narrow data, which excludes transportation and any defense-related categories that can be volatile month to month. That figure, which more closely tracks business equipment spending, shows orders rose just 0.2%.

What they're saying: "The positive takeaway from this is that the report suggests that weakness in manufacturing does not appear to be intensifying, but neither are there signs of recovery," economists at Brean Capital wrote in a note.

The intrigue: Weaker demand on the part of businesses contrasts with that of the still-strong consumer, which has underpinned the resilient economy.

• "It is difficult to explain why businesses are so cautious despite equity markets being at record highs," ING economist James Knightley said in a note after the data release.
• Knightley notes that business caution is evident in other survey-based indicators, including the PMI data we noted yesterday that indicated cooler demand, which "stands in stark contrast to the robust GDP numbers we are seeing."
• "The contradictions in the U.S. economy appear to be getting larger," Knightley said.