NY Fed Says Odds High Productivity Gains to Slow Going Forward
The productivity surge that helped boost U.S. economic growth since 1997 has probably ended, according to a researcher at the Federal Reserve Bank of New York.
There is a 90 percent chance gains in worker output per hour have fallen to levels consistent with the quarter-century of slow growth that spanned 1973 to 1997, New York Fed economist Robert Rich wrote in a report today on the bank’s Liberty Street Economics blog. The report was co-written with James Kahn, an economics professor at Yeshiva University and a former New York Fed economist.
The productivity slowdown probably began in 2004 and has pushed efficiency gains closer to the 1.5 percent “low-trend growth” seen during the early 1970s and late 1990s from the 3 percent increases seen during the “high-trend growth” period that followed, the report said. In the next five years, the researchers estimate productivity will rise by less than 2 percent a year.
As U.S. productivity gains picked up between the late 1990s and early 2000s, former Fed Chairman Alan Greenspan recognized accelerating worker efficiency would contain inflation even as the economy gained strength and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999.
Potential gross domestic product is around 2.5 percent, where it’s been for the last eight years, the report said.
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