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posted on 04 July 2015

Low Trend Growth, Productivity Hopes, And The Outlook

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

ECRI's Lakshman Achuthan joined Bloomberg TV to discuss low trend growth, productivity, wages, the U.S. economic outlook, and more.

A number of analysts have been ratcheting down their long-term trend GDP growth forecasts, with one well-known house finally reducing theirs from 2¼% to 1¾%. And the cuts are not over yet.

Those still predicting a return to 2½ - 3% long-term GDP growth are essentially betting that productivity growth will rebound to its post-World War II average - around 2¼% per year, even though it has averaged only ½% a year for the past four years. Indeed, we are now in what one could call a "productivity recession" - back-to-back quarterly declines in productivity.

This puts the Fed in a bind: as falling trend growth caps bond yields, how much can they really tighten before parts of the yield curve invert?

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