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The GDP Revision: The End of Productivity

Posted by: Michael Mandel on February 27

Obviously this morning’s GDP report is extremely depressing, with growth being revised down from -3.8% to -6.2% in the fourth quarter.

Let me just highlight one interesting implication. Based on the original GDP data, productivity growth in the fourth quarter was 3.2%. That was a fairly positive number.

But today’s data release shows that the growth rate of “nonfarm business gross value added”—which is the numerator for productivity growth—was revised down from -5.5% to -8.7%.

That decline of 3.2 percentage points wipes out all the productivity growth from the fourth quarter. So in fact, despite all the job cuts, companies have not gotten out ahead of the fall in the economy.

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Reader Comments


February 27, 2009 03:42 PM

It is pretty normal that productivity suffers in an economic duwnturn,as companies try to protect the best of their workforce,hoping that demand will return,before additional layoffs are unavoidable.Productivity typically does best in a growing economy,as companies tries to get as much out of the existing workforce,before adding more workers.Can you point to a period where productivity went up while we had negative growth?


February 27, 2009 05:52 PM

Actually, the opposite it true. Productivity does the best during a recession, and the worst when the economy is peaking and even inept people are getting multiple job offers.

Productivity growth of 0% in Q408 is not so bad if GDP contracted by -6.2%. Productivity is still 6.2% higher than GDP growth. Normally, productivity lags GDP growth by 1% (due to population growtn). Productivity is closely corelated to per-capita GDP growth.

Productivity racing higher than GDP growth (as even a 0% productivity reading would be) means that while employment will continue to contract, corporate earnings will rise sharply, and the stock market will recover sharply.


February 28, 2009 03:35 PM

Stop with the productivity worship. It is more theory than measurement fact. Dump it and the savings rate or keep worshipping stone idols.

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 This blog is no longer active.



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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