Bad productivity growth

Posted by: Michael Mandel on January 30

Just to point out in this morning’s GDP report, the increase in nonfarm business gross value added—which is the numerator for productivity—was only 0.4%. Aggregate hours rose at a 1.1% rate, so we could have a negative productivity number for the fourth quarter.

Folks, we are in an secular productivity downshift, which raises the odds of stagflation.

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Reader Comments

Felix Salmon

January 30, 2008 10:17 AM

What's the difference between a secular productivity downshift and a cyclical productivity downshift? And how can you tell that we're in the former rather than the latter?

Mike Mandel

January 30, 2008 10:40 AM

Felix,

Second question first. You can't tell for quite a while. One big problem is that the productivity numbers are subject to enormous revisions, as well as big quarter-to-quarter bounces.

First question. Productivity is normally procyclical--it goes down in recessions and up in booms. But there's an underlying trend at any point. There was a downshift in trend productivity in the mid-1970s, and an upshift in the mid-1990s. This may be another one.

spencer

January 30, 2008 11:16 AM

Historically there has been a tight correlation between the hours worked in the employment report and the hours worked in the productivity report. So the type of analysis you are doing was a good approach. But this cycle the hours worked in the productivity report have been significantly weaker then the hours worked in the employment report. So this cycle if you did the approach you are using you would have significantly underestimated the growth in productivity. I know,I have done it.

Despite the warning, your overall conclusion is still right.

Kevin F

January 30, 2008 03:59 PM

Well, quarterly GDP growth fell from 4.9% to 0.6%, and that was not accompanied by massive increases in unemployment -- so yes no surprise that productivity growth would fall.

However I'm missing the evidence that this must be secular... Is that what economists call a "random guess"?

Mike Mandel

January 31, 2008 04:30 PM

Hi Kevin,

Well, productivity growth has been slowing for the past year or so, so this is another data point. Having said that, it is true that divining the underlying growth trend of productivity does have a bit of guesswork associated with it. The big problem is that productivity data is regularly revised, and not by small amounts. So the actual numbers right now could be higher or lower than the reported numbers

Kartik

February 4, 2008 07:26 PM

While higher productivity is the best, is it also not true that negative productivity growth can ensure that job reductions do not occur?

And thus, negative productivity growth in this downturn would keep unemployment low, hence avoiding recession (of which job losses are a mandatory component).

In the last recession (2001-03), productivity growth was unusally high, leading to a long period of jobless recovery..

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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