Strong Productivity Defies Trend (Worst economy since Great Depression! - no wait...)

The Wall Street Journal ^ | August 4, 2008 | Brian Blackstone

[abb]

Recessions don't usually look like this, at least when it comes to productivity.

In the six U.S. recessions since 1970, worker productivity, or output per hour, grew a sluggish 0.8%, on average. But since the end of last year, even amid economic weakness, productivity is estimated to have grown an average 2.5% at an annual rate.

That defies productivity's usual behavior of going "up in good times and down in bad times," says Georgia State University forecaster Rajeev Dhawan.

Productivity's path isn't just an academic debate. That productivity is staying strong even in bad times has big implications for economic growth, inflation, employment and, ultimately, living standards. For example, strong productivity growth, by countering inflation pressures from energy and commodities, allows the Fed to keep interest rates lower than it otherwise might, helping it stoke the economy.

But "it's a bit of a two-edged sword," said Chris Varvares of Macroeconomic Advisers, since efficiency gains could mean that companies can get by with fewer workers, exacerbating unemployment in the short run.

Some economists say that the current healthy growth in productivity reflects a shift in the economy from less productive domestic sectors like home building and into exporting industries, which tend to be highly efficient. That shift has been aided by the weak dollar, which has made U.S. exports more competitive.

"It's a compositional story," said Dale Jorgenson, a productivity expert at Harvard University. Productivity, he explained, is "languid" in construction, so the decline of building as a share of the economy in recent quarters "is certainly going to be positive for productivity" on average.

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[expat_panama]

"...productivity's usual behavior of going "up in good times and down in bad times," says Georgia State University forecaster Rajeev Dhawan"

Rajeev is wrong.

Changes in productivity lead changes in gdp by about a year or two.

If things go like they've been for the last few decades, then we're about to have further upticks in gdp without serious increases in inflation.

[TruthConquers]

I really don’t like the idea of Arabs holding my mortgage, that’s all. It’s not like they’re Christian or anything like that. Infidels are animals to them.

[Freedom_Is_Not_Free]

Seems I need to subscribe to read the article.

In light of that, if productivity is going up, why is GDP going down?

[sam_paine]

Everything I see is “Made in China”. So few things are made in the USA anymore.

You'd be surprised how the network news can blind you to the reality in front of you.

There is probably no amount of stats or anecdotal evidence that can overcome the tv-says-it's-so-funk.