According to a report from Bank of America, US worker productivity has hit an all-time high. As productivity has increased, wage growth year-over-year has also seen a slight increase, meaning consumers are willing to spend more.

Yahoo Finance Markets Reporter Josh Schafer joins the Live show to break down why the results do not comprise an 'inflationary problem' and how productivity can help company margins.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JOSH LIPTON: American workers are becoming more productive. This coming from recent Bank of America analysis showing the average revenue per worker for S&P 500 companies hitting an all-time high.

For more, we're bringing in Yahoo Finance's very own Joshua Schafer. Josh.

JOSH SCHAFER: Yeah, Josh, so obviously the overall takeaway there would be if companies are making more revenue per their employees that they have, that would just be considered a good thing, right? Companies want to make more revenue because growing more revenue is eventually going to help you make more money. I think there's sort of a broad, simple takeaway there.

But diving into the economics of it, labor productivity has been a big topic for a lot of economists in the past couple months, and a large reason that that's become such a big part of the conversation is when you look at wage growth. So wage growth just came in at 4.3% in the jobs report last week. It's still significantly higher than where economists think the Fed would want to see it. Economists have estimated that that number should come down to maybe 3.5% to get us to that 2% inflation target.

But the key to labor productivity and why it matters so much is when labor productivity goes up, you can have higher wage growth because higher wage growth, right-- if we think about this from a simple economics standpoint, if I'm making more money, I'm willing to spend more on goods, right? So goods prices would go up. But if we're making more, if labor productivity goes up too, then we have both supply and demand rising. And for those of us that took Economics 101, that would mean that prices can stay the same, right? So it would not be an inflationary problem.

There's also another part of this productivity story we're just-- it might help company margins, and I think that that's something a lot of strategists were highlighting. That's why Bank of America was pointing this out. This was part of their S&P to 5,400 for the end of the year call and sort of their overall EPS story.

JULIE HYMAN: So connect those dots for us then. How do you get from better productivity to S&P 5,400?

JOSH SCHAFER: Sure. Yeah, so a part of it is because simply you're going to make more money, and then you-- as companies, you get to decide what to do with it, right? So it could directly just go into a margin boost, and you could see margins go up as productivity goes up. Or there's sort of another side of this too that BofA was highlighting, which is interesting where if productivity is going up and your top line is going up, you could also invest more back into your business and increase capex, right?

And Bank of America in our chart of the day-- I'll shout out our chart of the day from the Yahoo Finance Morning Brief newsletter that we had this morning. But Bank of America was pointing out that the capex increases that we're seeing from Microsoft, Amazon, Meta Nvidia you could argue-- but really the cloud companies, so I shouldn't include Nvidia in that. Overall, the capex spend that we're seeing there is going to help the rest of the economy because what does it take to build more AI in these companies and build more cloud? It's going to take more energy, right? It's going to take more old economy.

BofA basically lays out a case that these old-economy companies, companies in the utility sector, companies in the energy sector, they're capex takers. When these big tech companies want to spend, these other companies benefit from that. So it's good for tech, which we know is always good for the stock market. We talk a lot about tech stocks going up. But it's also good for other companies, and that's how you get to S&P 5,400, Julie, is a little bit more than tech. It's the benefits that these other companies could potentially see as the economy picks up.

JULIE HYMAN: Interesting. We'll see if it plays out that way. Thanks, Josh.

JOSH SCHAFER: We will.