The BLS reported that third quarter productivity growth was 4.1%, the highest number in more than a year. This is far higher than most economists were predicting just a month or so ago. What's more, the productivity gain over the past year has averaged 3%, also the highest in more than a year.
What's going on here? It looks like the productivity boost from the information and globalization revolutions hasn't yet let up. Economists keep worrying that productivity growth will revert back to 2% or less, and the economy keeps fooling them.
One important implication of rapid productivity growth: As long as this continues, the U.S. will look like a much better place to invest than either Europe or Japan, and the trade deficit is much easier to sustain. This explains why the dollar has risen against other currencies.
Another important implication: Fast productivity growth means that inflation is less of a worry, and the Fed may not need to raise rates much higher.