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%

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. 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
Empty Rhetoric: On the Work of Deirdre McCloskey
Men Without Work
News Blog
25 March 2017 Initial Unemployment Claims Rolling Average Again Worsens
Adjusting To An Imperfect Reality
Employers Wise To Tap Into Older Workers Waiting On Retirement
Infographic Of The Day: How Seven Types Of Global Megacities Stack Up
Early Headlines: Asia Stocks Down, Dollar Up, Gold, Oil Steady, Senate Takes Russia Probe, Income - Tale Of 2 Countries, London Off. Values Face Big Drop, Russia Cuts Oil, Border Wall In Mexico?, And More
Documentary Of The Week: America Before Columbus
American Doctors: The Prognosis Isn't Good
Brexit: 'Leave' Voters Showing Most Signs Of Doubt
Crumbling Comet? The Great Debate About Whether Rosetta Rock 67P Is Breaking Apart
ISIS: Income Has More Than Halved Since 2014
What We Read Today 29 March 2017
The Best Hilarious Prank Ideas For April Fools' Day
February 2017 Pending Home Sales Index Improves?
Investing Blog
Where In The World To Invest? A Search Of The Globe
Boom Or Bust: Tech IPOs Can Go Either Way
Opinion Blog
Scarborough Shoal: Will America Help The Philippines?
Why Did Preet Bharara Refuse To Drain The Wall Street Swamp?
Precious Metals Blog
Following The Yellow Brick Road
Live Markets
30Mar2017 Pre-Market Commentary: Wall Street To Open Again Flat And May End Session In The Red, The US Dollar And Crude Prices Climbing Higher
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































 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 - 2017 Econintersect LLC - all rights reserved