I’ve been arguing that 1.2% RGDP and 3.0% NGDP growth is the new normal. The RGDP growth is of course an arbitrary figure, reflecting the whims of statisticians at the BEA. But the NGDP slowdown is real (pardon the pun.) So let’s not have any tiresome debates over angels dancing on a pin, or whether there is unmeasured digital “output.”
It seems like the experts are beginning to figure this out:
Productivity fell at a 3.1 percent annual rate instead of the previously reported 1.9 percent pace, the Labor Department said. That was the first back-to-back fall in productivity since 2006.
. . .
The productivity decline mirrors the economy’s dismal performance in the first quarter, when output contracted at a 0.7 percent rate.
Given that temporary factors contributed to the decline in output, the drop in productivity could be overstated and a rebound is likely in the second half of the year.Still, weak productivity suggests that the economy’s potential growth could be lower than the 1.5 percent to 2.0 percent pace economists currently estimate.
“economists currently estimate”?!?!? Not me.
Over the past 5 years, productivity has risen by less than 3%. That might not seem so bad, except I’m referring to the total increase, not the annual increase. Again, get used to 1.2% RGDP growth; it’s the new normal, the new trend line. Within a few years I expect even the Fed will begin to catch on to what’s happening.
One slightly more upbeat observation is that RGDP growth will continue at 2%/year for a bit longer, but that above trend growth during this expansion will be given up in the next recession.
PS. Today’s jobs numbers make the productivity situation even worse–don’t expect much bounce back in Q2 productivity.
PPS. After I wrote this I noticed a comment by Justin with many similar points:
In the 5 years to April 2015, just shy of 12 million private sector jobs were created, an annual growth rate of 2.1%/yr.
For comparison, in the 5 years to December 2007, 7.1 million private sector jobs were created, a growth rate of 1.3%/yr and in the 5 years to March 2001, 12.3 million private sector jobs were created, a growth rate of 2.4%/yr. So from a job creation perspective, the current expansion is running much hotter than the Bush years, and just a bit slower than during the go-go years of late 1990s.
What’s the disconnect? Productivity. In the 5 years to 2001Q1, productivity grew 2.7%/yr, and in the 5 years to 2007Q4, productivity grew 2.4%/yr. Over the past 5 years, productivity has grown just 0.6%/yr. If productivity were growing as it had during the past two cycles, we’d be enjoying 4% real GDP growth, not 2%.