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The Unnoticed Statistic


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August 29, 2005

The Unnoticed Statistic

Michael Mandel

The single best statistic for judging the health of an economy is what's known as multifactor productivity (MFP). (I wrote about it here). MFP measures how efficiently an economy uses all of its physical, human, and technological assets.

To put it another way, rising MFP is like free money--you get added output without having to invest more. An economy with fast-growing MFP will over the long-run always beat one with low-growth MFP.

I didn't see it at the time, but in June the Bureau of Labor Statistics issued early estimates of MFP for 2003 and 2004--and the results were spectacular. According to their numbers, MFP growth was 3.1% in 2003 and 3.3% in 2004.

To put these results in perspective, this was the first time MFP growth had topped 3% since 1976. And it was the first time since the mid-sixties that the U.S. had had two straight years of plus 3% MFP growth.

If MFP keeps rising at this rate--if Americans keep finding ways to work smarter and to advantage of new technology--then the trade and budget deficits are fairly irrelevant.

11:26 AM

Growth

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Listed below are links to weblogs that reference The Unnoticed Statistic:

? An Informed Technology Consumer Be from The Webquarters

What is the link between Information Technology and productivity?

Information Technology's beneficial effects on business are myriad. It has no

Erick Schonfeld, in his b2day blog [Read More]

Tracked on September 1, 2005 05:53 AM

Michael,

If 2002 was 2% and both 2003 and 2004 are over 3%, then this is much higher than it was in the late 1990s. Does this mean we are on the cusp of a new boom, even bigger than that, or is MFP just catching up with the stock market and GDP, which remained at a higher trajectory permanently even after the 2001 recession?

Also, how does MFP tie to GDP? I know that Labor productivity has a loose corelation to GDP per capita, and thus adding 1% for population growth, a long-term labor productivity rate of 2.5% might translate to a 3.5% GDP growth rate (excluding current accounts).

But how does MFP corelate to GDP, if at all?

Posted by: KG at August 29, 2005 07:15 PM

Hi KG

To answer your second question first, you are right..MFP is very closely connected with GDP. Roughly speaking private business output is equal to the product of multifactor productivity, labor inputs, and capital services. Labor is adjusted for education and experience, and capital is adjusted for depreciation and investment.

That makes MFP probably the most important component of whether we are in good times or bad. times.

Posted by: MM at August 30, 2005 09:08 AM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: steve baker at August 30, 2005 11:10 AM

MM,

OK. But then, given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

When we exclude current account deficit, our GDP is indeed growing at 5% per year. But where else do we see the supercharged MFP manifest itself?

Posted by: KG at August 30, 2005 12:03 PM

Steve, there were actually a bunch of okay years in the late 1970s, in terms of growth. The growth rate in 1976, 1977, and 1978 were 5.3, 4.6, and 5.6, respectively.

KG--I think the high MFP is showing up in strong corporate profits and rising asset values.

Posted by: MM at August 31, 2005 08:56 AM

Michael,

So, corporate profits are rising. But housing is widely seen to be a bubble in coastal cities, driven by low interest rates and funny loan products.

GDP is moderate but not great. ISM indices are good but not great. Consumer confidence is moderate but not great. Only MFP is turning in the best numbers in 35+ years.

My question still remains : Given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

Posted by: KG at August 31, 2005 05:20 PM

With All this talk about rising MFP, Rising profits, and growth of assets, why is the stock market so flat this year? Actually the DJIA is down about 2% this year.

Posted by: Joe at September 29, 2005 11:02 PM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: Ann at January 4, 2006 01:00 AM

? The Housing Bubble: Bad news, or sign of prosperity? |

Main

| The Continuing Decline in College Wages ?

August 29, 2005

The Unnoticed Statistic

Michael Mandel

The single best statistic for judging the health of an economy is what's known as multifactor productivity (MFP). (I wrote about it here). MFP measures how efficiently an economy uses all of its physical, human, and technological assets.

To put it another way, rising MFP is like free money--you get added output without having to invest more. An economy with fast-growing MFP will over the long-run always beat one with low-growth MFP.

I didn't see it at the time, but in June the Bureau of Labor Statistics issued early estimates of MFP for 2003 and 2004--and the results were spectacular. According to their numbers, MFP growth was 3.1% in 2003 and 3.3% in 2004.

To put these results in perspective, this was the first time MFP growth had topped 3% since 1976. And it was the first time since the mid-sixties that the U.S. had had two straight years of plus 3% MFP growth.

If MFP keeps rising at this rate--if Americans keep finding ways to work smarter and to advantage of new technology--then the trade and budget deficits are fairly irrelevant.

11:26 AM

Growth

TrackBack URL for this entry:

http://blogs.businessweek.com/mt/mt-tb.cgi/

Listed below are links to weblogs that reference The Unnoticed Statistic:

? An Informed Technology Consumer Be from The Webquarters

What is the link between Information Technology and productivity?

Information Technology's beneficial effects on business are myriad. It has no

Erick Schonfeld, in his b2day blog [Read More]

Tracked on September 1, 2005 05:53 AM

Michael,

If 2002 was 2% and both 2003 and 2004 are over 3%, then this is much higher than it was in the late 1990s. Does this mean we are on the cusp of a new boom, even bigger than that, or is MFP just catching up with the stock market and GDP, which remained at a higher trajectory permanently even after the 2001 recession?

Also, how does MFP tie to GDP? I know that Labor productivity has a loose corelation to GDP per capita, and thus adding 1% for population growth, a long-term labor productivity rate of 2.5% might translate to a 3.5% GDP growth rate (excluding current accounts).

But how does MFP corelate to GDP, if at all?

Posted by: KG at August 29, 2005 07:15 PM

Hi KG

To answer your second question first, you are right..MFP is very closely connected with GDP. Roughly speaking private business output is equal to the product of multifactor productivity, labor inputs, and capital services. Labor is adjusted for education and experience, and capital is adjusted for depreciation and investment.

That makes MFP probably the most important component of whether we are in good times or bad. times.

Posted by: MM at August 30, 2005 09:08 AM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: steve baker at August 30, 2005 11:10 AM

MM,

OK. But then, given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

When we exclude current account deficit, our GDP is indeed growing at 5% per year. But where else do we see the supercharged MFP manifest itself?

Posted by: KG at August 30, 2005 12:03 PM

Steve, there were actually a bunch of okay years in the late 1970s, in terms of growth. The growth rate in 1976, 1977, and 1978 were 5.3, 4.6, and 5.6, respectively.

KG--I think the high MFP is showing up in strong corporate profits and rising asset values.

Posted by: MM at August 31, 2005 08:56 AM

Michael,

So, corporate profits are rising. But housing is widely seen to be a bubble in coastal cities, driven by low interest rates and funny loan products.

GDP is moderate but not great. ISM indices are good but not great. Consumer confidence is moderate but not great. Only MFP is turning in the best numbers in 35+ years.

My question still remains : Given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

Posted by: KG at August 31, 2005 05:20 PM

With All this talk about rising MFP, Rising profits, and growth of assets, why is the stock market so flat this year? Actually the DJIA is down about 2% this year.

Posted by: Joe at September 29, 2005 11:02 PM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: Ann at January 4, 2006 01:00 AM

? The Housing Bubble: Bad news, or sign of prosperity? |

Main

| The Continuing Decline in College Wages ?

August 29, 2005

The Unnoticed Statistic

Michael Mandel

The single best statistic for judging the health of an economy is what's known as multifactor productivity (MFP). (I wrote about it here). MFP measures how efficiently an economy uses all of its physical, human, and technological assets.

To put it another way, rising MFP is like free money--you get added output without having to invest more. An economy with fast-growing MFP will over the long-run always beat one with low-growth MFP.

I didn't see it at the time, but in June the Bureau of Labor Statistics issued early estimates of MFP for 2003 and 2004--and the results were spectacular. According to their numbers, MFP growth was 3.1% in 2003 and 3.3% in 2004.

To put these results in perspective, this was the first time MFP growth had topped 3% since 1976. And it was the first time since the mid-sixties that the U.S. had had two straight years of plus 3% MFP growth.

If MFP keeps rising at this rate--if Americans keep finding ways to work smarter and to advantage of new technology--then the trade and budget deficits are fairly irrelevant.

11:26 AM

Growth

TrackBack URL for this entry:

http://blogs.businessweek.com/mt/mt-tb.cgi/

Listed below are links to weblogs that reference The Unnoticed Statistic:

? An Informed Technology Consumer Be from The Webquarters

What is the link between Information Technology and productivity?

Information Technology's beneficial effects on business are myriad. It has no

Erick Schonfeld, in his b2day blog [Read More]

Tracked on September 1, 2005 05:53 AM

Michael,

If 2002 was 2% and both 2003 and 2004 are over 3%, then this is much higher than it was in the late 1990s. Does this mean we are on the cusp of a new boom, even bigger than that, or is MFP just catching up with the stock market and GDP, which remained at a higher trajectory permanently even after the 2001 recession?

Also, how does MFP tie to GDP? I know that Labor productivity has a loose corelation to GDP per capita, and thus adding 1% for population growth, a long-term labor productivity rate of 2.5% might translate to a 3.5% GDP growth rate (excluding current accounts).

But how does MFP corelate to GDP, if at all?

Posted by: KG at August 29, 2005 07:15 PM

Hi KG

To answer your second question first, you are right..MFP is very closely connected with GDP. Roughly speaking private business output is equal to the product of multifactor productivity, labor inputs, and capital services. Labor is adjusted for education and experience, and capital is adjusted for depreciation and investment.

That makes MFP probably the most important component of whether we are in good times or bad. times.

Posted by: MM at August 30, 2005 09:08 AM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: steve baker at August 30, 2005 11:10 AM

MM,

OK. But then, given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

When we exclude current account deficit, our GDP is indeed growing at 5% per year. But where else do we see the supercharged MFP manifest itself?

Posted by: KG at August 30, 2005 12:03 PM

Steve, there were actually a bunch of okay years in the late 1970s, in terms of growth. The growth rate in 1976, 1977, and 1978 were 5.3, 4.6, and 5.6, respectively.

KG--I think the high MFP is showing up in strong corporate profits and rising asset values.

Posted by: MM at August 31, 2005 08:56 AM

Michael,

So, corporate profits are rising. But housing is widely seen to be a bubble in coastal cities, driven by low interest rates and funny loan products.

GDP is moderate but not great. ISM indices are good but not great. Consumer confidence is moderate but not great. Only MFP is turning in the best numbers in 35+ years.

My question still remains : Given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

Posted by: KG at August 31, 2005 05:20 PM

With All this talk about rising MFP, Rising profits, and growth of assets, why is the stock market so flat this year? Actually the DJIA is down about 2% this year.

Posted by: Joe at September 29, 2005 11:02 PM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: Ann at January 4, 2006 01:00 AM

? The Housing Bubble: Bad news, or sign of prosperity? |

Main

| The Continuing Decline in College Wages ?

August 29, 2005

The Unnoticed Statistic

Michael Mandel

The single best statistic for judging the health of an economy is what's known as multifactor productivity (MFP). (I wrote about it here). MFP measures how efficiently an economy uses all of its physical, human, and technological assets.

To put it another way, rising MFP is like free money--you get added output without having to invest more. An economy with fast-growing MFP will over the long-run always beat one with low-growth MFP.

I didn't see it at the time, but in June the Bureau of Labor Statistics issued early estimates of MFP for 2003 and 2004--and the results were spectacular. According to their numbers, MFP growth was 3.1% in 2003 and 3.3% in 2004.

To put these results in perspective, this was the first time MFP growth had topped 3% since 1976. And it was the first time since the mid-sixties that the U.S. had had two straight years of plus 3% MFP growth.

If MFP keeps rising at this rate--if Americans keep finding ways to work smarter and to advantage of new technology--then the trade and budget deficits are fairly irrelevant.

11:26 AM

Growth

TrackBack URL for this entry:

http://blogs.businessweek.com/mt/mt-tb.cgi/

Listed below are links to weblogs that reference The Unnoticed Statistic:

? An Informed Technology Consumer Be from The Webquarters

What is the link between Information Technology and productivity?

Information Technology's beneficial effects on business are myriad. It has no

Erick Schonfeld, in his b2day blog [Read More]

Tracked on September 1, 2005 05:53 AM

Michael,

If 2002 was 2% and both 2003 and 2004 are over 3%, then this is much higher than it was in the late 1990s. Does this mean we are on the cusp of a new boom, even bigger than that, or is MFP just catching up with the stock market and GDP, which remained at a higher trajectory permanently even after the 2001 recession?

Also, how does MFP tie to GDP? I know that Labor productivity has a loose corelation to GDP per capita, and thus adding 1% for population growth, a long-term labor productivity rate of 2.5% might translate to a 3.5% GDP growth rate (excluding current accounts).

But how does MFP corelate to GDP, if at all?

Posted by: KG at August 29, 2005 07:15 PM

Hi KG

To answer your second question first, you are right..MFP is very closely connected with GDP. Roughly speaking private business output is equal to the product of multifactor productivity, labor inputs, and capital services. Labor is adjusted for education and experience, and capital is adjusted for depreciation and investment.

That makes MFP probably the most important component of whether we are in good times or bad. times.

Posted by: MM at August 30, 2005 09:08 AM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: steve baker at August 30, 2005 11:10 AM

MM,

OK. But then, given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

When we exclude current account deficit, our GDP is indeed growing at 5% per year. But where else do we see the supercharged MFP manifest itself?

Posted by: KG at August 30, 2005 12:03 PM

Steve, there were actually a bunch of okay years in the late 1970s, in terms of growth. The growth rate in 1976, 1977, and 1978 were 5.3, 4.6, and 5.6, respectively.

KG--I think the high MFP is showing up in strong corporate profits and rising asset values.

Posted by: MM at August 31, 2005 08:56 AM

Michael,

So, corporate profits are rising. But housing is widely seen to be a bubble in coastal cities, driven by low interest rates and funny loan products.

GDP is moderate but not great. ISM indices are good but not great. Consumer confidence is moderate but not great. Only MFP is turning in the best numbers in 35+ years.

My question still remains : Given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

Posted by: KG at August 31, 2005 05:20 PM

With All this talk about rising MFP, Rising profits, and growth of assets, why is the stock market so flat this year? Actually the DJIA is down about 2% this year.

Posted by: Joe at September 29, 2005 11:02 PM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: Ann at January 4, 2006 01:00 AM

? The Housing Bubble: Bad news, or sign of prosperity? |

Main

| The Continuing Decline in College Wages ?

August 29, 2005

The Unnoticed Statistic

Michael Mandel

The single best statistic for judging the health of an economy is what's known as multifactor productivity (MFP). (I wrote about it here). MFP measures how efficiently an economy uses all of its physical, human, and technological assets.

To put it another way, rising MFP is like free money--you get added output without having to invest more. An economy with fast-growing MFP will over the long-run always beat one with low-growth MFP.

I didn't see it at the time, but in June the Bureau of Labor Statistics issued early estimates of MFP for 2003 and 2004--and the results were spectacular. According to their numbers, MFP growth was 3.1% in 2003 and 3.3% in 2004.

To put these results in perspective, this was the first time MFP growth had topped 3% since 1976. And it was the first time since the mid-sixties that the U.S. had had two straight years of plus 3% MFP growth.

If MFP keeps rising at this rate--if Americans keep finding ways to work smarter and to advantage of new technology--then the trade and budget deficits are fairly irrelevant.

11:26 AM

Growth

TrackBack URL for this entry:

http://blogs.businessweek.com/mt/mt-tb.cgi/

Listed below are links to weblogs that reference The Unnoticed Statistic:

? An Informed Technology Consumer Be from The Webquarters

What is the link between Information Technology and productivity?

Information Technology's beneficial effects on business are myriad. It has no

Erick Schonfeld, in his b2day blog [Read More]

Tracked on September 1, 2005 05:53 AM

Michael,

If 2002 was 2% and both 2003 and 2004 are over 3%, then this is much higher than it was in the late 1990s. Does this mean we are on the cusp of a new boom, even bigger than that, or is MFP just catching up with the stock market and GDP, which remained at a higher trajectory permanently even after the 2001 recession?

Also, how does MFP tie to GDP? I know that Labor productivity has a loose corelation to GDP per capita, and thus adding 1% for population growth, a long-term labor productivity rate of 2.5% might translate to a 3.5% GDP growth rate (excluding current accounts).

But how does MFP corelate to GDP, if at all?

Posted by: KG at August 29, 2005 07:15 PM

Hi KG

To answer your second question first, you are right..MFP is very closely connected with GDP. Roughly speaking private business output is equal to the product of multifactor productivity, labor inputs, and capital services. Labor is adjusted for education and experience, and capital is adjusted for depreciation and investment.

That makes MFP probably the most important component of whether we are in good times or bad. times.

Posted by: MM at August 30, 2005 09:08 AM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: steve baker at August 30, 2005 11:10 AM

MM,

OK. But then, given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

When we exclude current account deficit, our GDP is indeed growing at 5% per year. But where else do we see the supercharged MFP manifest itself?

Posted by: KG at August 30, 2005 12:03 PM

Steve, there were actually a bunch of okay years in the late 1970s, in terms of growth. The growth rate in 1976, 1977, and 1978 were 5.3, 4.6, and 5.6, respectively.

KG--I think the high MFP is showing up in strong corporate profits and rising asset values.

Posted by: MM at August 31, 2005 08:56 AM

Michael,

So, corporate profits are rising. But housing is widely seen to be a bubble in coastal cities, driven by low interest rates and funny loan products.

GDP is moderate but not great. ISM indices are good but not great. Consumer confidence is moderate but not great. Only MFP is turning in the best numbers in 35+ years.

My question still remains : Given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

Posted by: KG at August 31, 2005 05:20 PM

With All this talk about rising MFP, Rising profits, and growth of assets, why is the stock market so flat this year? Actually the DJIA is down about 2% this year.

Posted by: Joe at September 29, 2005 11:02 PM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: Ann at January 4, 2006 01:00 AM

? The Housing Bubble: Bad news, or sign of prosperity? |

Main

| The Continuing Decline in College Wages ?

August 29, 2005

The Unnoticed Statistic

Michael Mandel

The single best statistic for judging the health of an economy is what's known as multifactor productivity (MFP). (I wrote about it here). MFP measures how efficiently an economy uses all of its physical, human, and technological assets.

To put it another way, rising MFP is like free money--you get added output without having to invest more. An economy with fast-growing MFP will over the long-run always beat one with low-growth MFP.

I didn't see it at the time, but in June the Bureau of Labor Statistics issued early estimates of MFP for 2003 and 2004--and the results were spectacular. According to their numbers, MFP growth was 3.1% in 2003 and 3.3% in 2004.

To put these results in perspective, this was the first time MFP growth had topped 3% since 1976. And it was the first time since the mid-sixties that the U.S. had had two straight years of plus 3% MFP growth.

If MFP keeps rising at this rate--if Americans keep finding ways to work smarter and to advantage of new technology--then the trade and budget deficits are fairly irrelevant.

11:26 AM

Growth

TrackBack URL for this entry:

http://blogs.businessweek.com/mt/mt-tb.cgi/

Listed below are links to weblogs that reference The Unnoticed Statistic:

? An Informed Technology Consumer Be from The Webquarters

What is the link between Information Technology and productivity?

Information Technology's beneficial effects on business are myriad. It has no

Erick Schonfeld, in his b2day blog [Read More]

Tracked on September 1, 2005 05:53 AM

Michael,

If 2002 was 2% and both 2003 and 2004 are over 3%, then this is much higher than it was in the late 1990s. Does this mean we are on the cusp of a new boom, even bigger than that, or is MFP just catching up with the stock market and GDP, which remained at a higher trajectory permanently even after the 2001 recession?

Also, how does MFP tie to GDP? I know that Labor productivity has a loose corelation to GDP per capita, and thus adding 1% for population growth, a long-term labor productivity rate of 2.5% might translate to a 3.5% GDP growth rate (excluding current accounts).

But how does MFP corelate to GDP, if at all?

Posted by: KG at August 29, 2005 07:15 PM

Hi KG

To answer your second question first, you are right..MFP is very closely connected with GDP. Roughly speaking private business output is equal to the product of multifactor productivity, labor inputs, and capital services. Labor is adjusted for education and experience, and capital is adjusted for depreciation and investment.

That makes MFP probably the most important component of whether we are in good times or bad. times.

Posted by: MM at August 30, 2005 09:08 AM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: steve baker at August 30, 2005 11:10 AM

MM,

OK. But then, given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

When we exclude current account deficit, our GDP is indeed growing at 5% per year. But where else do we see the supercharged MFP manifest itself?

Posted by: KG at August 30, 2005 12:03 PM

Steve, there were actually a bunch of okay years in the late 1970s, in terms of growth. The growth rate in 1976, 1977, and 1978 were 5.3, 4.6, and 5.6, respectively.

KG--I think the high MFP is showing up in strong corporate profits and rising asset values.

Posted by: MM at August 31, 2005 08:56 AM

Michael,

So, corporate profits are rising. But housing is widely seen to be a bubble in coastal cities, driven by low interest rates and funny loan products.

GDP is moderate but not great. ISM indices are good but not great. Consumer confidence is moderate but not great. Only MFP is turning in the best numbers in 35+ years.

My question still remains : Given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

Posted by: KG at August 31, 2005 05:20 PM

With All this talk about rising MFP, Rising profits, and growth of assets, why is the stock market so flat this year? Actually the DJIA is down about 2% this year.

Posted by: Joe at September 29, 2005 11:02 PM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: Ann at January 4, 2006 01:00 AM

? The Housing Bubble: Bad news, or sign of prosperity? |

Main

| The Continuing Decline in College Wages ?

August 29, 2005

The Unnoticed Statistic

Michael Mandel

The single best statistic for judging the health of an economy is what's known as multifactor productivity (MFP). (I wrote about it here). MFP measures how efficiently an economy uses all of its physical, human, and technological assets.

To put it another way, rising MFP is like free money--you get added output without having to invest more. An economy with fast-growing MFP will over the long-run always beat one with low-growth MFP.

I didn't see it at the time, but in June the Bureau of Labor Statistics issued early estimates of MFP for 2003 and 2004--and the results were spectacular. According to their numbers, MFP growth was 3.1% in 2003 and 3.3% in 2004.

To put these results in perspective, this was the first time MFP growth had topped 3% since 1976. And it was the first time since the mid-sixties that the U.S. had had two straight years of plus 3% MFP growth.

If MFP keeps rising at this rate--if Americans keep finding ways to work smarter and to advantage of new technology--then the trade and budget deficits are fairly irrelevant.

11:26 AM

Growth

TrackBack URL for this entry:

http://blogs.businessweek.com/mt/mt-tb.cgi/

Listed below are links to weblogs that reference The Unnoticed Statistic:

? An Informed Technology Consumer Be from The Webquarters

What is the link between Information Technology and productivity?

Information Technology's beneficial effects on business are myriad. It has no

Erick Schonfeld, in his b2day blog [Read More]

Tracked on September 1, 2005 05:53 AM

Michael,

If 2002 was 2% and both 2003 and 2004 are over 3%, then this is much higher than it was in the late 1990s. Does this mean we are on the cusp of a new boom, even bigger than that, or is MFP just catching up with the stock market and GDP, which remained at a higher trajectory permanently even after the 2001 recession?

Also, how does MFP tie to GDP? I know that Labor productivity has a loose corelation to GDP per capita, and thus adding 1% for population growth, a long-term labor productivity rate of 2.5% might translate to a 3.5% GDP growth rate (excluding current accounts).

But how does MFP corelate to GDP, if at all?

Posted by: KG at August 29, 2005 07:15 PM

Hi KG

To answer your second question first, you are right..MFP is very closely connected with GDP. Roughly speaking private business output is equal to the product of multifactor productivity, labor inputs, and capital services. Labor is adjusted for education and experience, and capital is adjusted for depreciation and investment.

That makes MFP probably the most important component of whether we are in good times or bad. times.

Posted by: MM at August 30, 2005 09:08 AM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: steve baker at August 30, 2005 11:10 AM

MM,

OK. But then, given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

When we exclude current account deficit, our GDP is indeed growing at 5% per year. But where else do we see the supercharged MFP manifest itself?

Posted by: KG at August 30, 2005 12:03 PM

Steve, there were actually a bunch of okay years in the late 1970s, in terms of growth. The growth rate in 1976, 1977, and 1978 were 5.3, 4.6, and 5.6, respectively.

KG--I think the high MFP is showing up in strong corporate profits and rising asset values.

Posted by: MM at August 31, 2005 08:56 AM

Michael,

So, corporate profits are rising. But housing is widely seen to be a bubble in coastal cities, driven by low interest rates and funny loan products.

GDP is moderate but not great. ISM indices are good but not great. Consumer confidence is moderate but not great. Only MFP is turning in the best numbers in 35+ years.

My question still remains : Given that 2002, 2003, and 2004 have been just about the best MFP growth period in the last 36-38 years, and much better than the late 1990s, does that mean that we are in the midst of the biggest boom since then?

Posted by: KG at August 31, 2005 05:20 PM

With All this talk about rising MFP, Rising profits, and growth of assets, why is the stock market so flat this year? Actually the DJIA is down about 2% this year.

Posted by: Joe at September 29, 2005 11:02 PM

I'm surprised by such a high number in 1976, smack in the middle of the worst economic decade since the 30s. Did it help boost the economy briefly in the late '70s before the second oil crunch arrived?

Posted by: Ann at January 4, 2006 01:00 AM


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