econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 14 June 2015

Simple Math: 1/2% + 1/2% = 1%

by Lakshman Achuthan, Co-Founder and Chief Operations Officer of ECRI

Recoveries have been weakening due to declines in growth in output per hour (i.e., productivity), growth in hours worked, or both. Taken together, they add up to real GDP growth. It's just simple math.

For the past four years, productivity growth (green line) has averaged just over ½% per year (red line), leading Fed Vice Chairman Stanley Fischer to lament that it "has stayed way, way down." Given the latest data, one could say that the U.S. is in a "productivity recession," having seen the largest back-to-back quarterly productivity declines in 22 years.

It's often assumed that productivity growth will rebound to its post-World War II average - around 2¼% per year (gold line). But you know what they say about assumptions. To quote Fischer again, "productivity is extremely difficult to predict," and "will perhaps eventually return" to its earlier pace. In other words, there's no clear reason why that will happen anytime soon. Indeed, since the end of 2013, productivity growth has averaged minus 0.7% a year.

Potential labor force growth (blue line) should reflect the long-term trend in growth in hours worked. But the Congressional Budget Office says it will stay at½% per year at least for the next decade. This is pretty much set in stone, given the demographics.

Adding up the likely trend growth of these two measures - ½% for productivity plus ½% for hours worked - gives us just 1% longer-term real GDP growth.

So, unless there's good reason to believe that productivity growth will revive, trend GDP growth may very well stay stuck in the 1% range for years to come. If so, growth slowdowns could much more easily push growth below zero, leaving very little room for error. Is the Fed ready?

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Fixing Obamacare - Why It Won’t Be Easy
Proud to Be a Nihilist: Bill Mitchell on Econometrics and Numerical Prediction
News Blog
What Did The EU Ever Do For Europeans?
The 10 Most Stolen Cars In America
Improvements In US Air Pollution
Has The Fed Been Effective In Stimulating Consumption?
Major League Soccer's Best-Paid Players
What We Read Today 02 December 2016
Why Your Phone Battery Gets Worse With Time
25 November 2016: ECRI's WLI Growth Index Improves
November 2016 BLS Jobs Growth Continues To Be OK, Just Not Great
Rail Week Ending 26 November 2016: Another Positive Week
It Will Take More Than A Wall To Solve Border Crime
Infographic Of The Day: How The Power Grid Actually Works
Early Headlines: Asia Stocks Down, Oil Eases, More Trump Noms, May Rebuked At Polls, Italy's 5 Star Movmt, Assad's Treachery, India's Currency Mess, Canada's Housing Bubble Popping? And More
Investing Blog
Investing.com Weekly Wrap-Up 02 December 2016
Anticipating The Trend Change Makes For The Lowest Risk
Opinion Blog
Please, Donald Trump, Don't Send Climate Science Back To The Pre-Satellite Era
What Would It Take For Inflation To Surge - Or Even Just Emerge?
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
02Dec2016 Market Close: WTI Crude Climbed Back Up To Previous 51 Handle, US Dollar Index Trading At The100 Level, Oil Rig Count At 10-Month High
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved