The Unnoticed Statistic

Michael Mandel

The single best statistic for judging the health of an economy is what's known as multifactor productivity (MFP). (I wrote about it here). MFP measures how efficiently an economy uses all of its physical, human, and technological assets.

To put it another way, rising MFP is like free money--you get added output without having to invest more. An economy with fast-growing MFP will over the long-run always beat one with low-growth MFP.

I didn't see it at the time, but in June the Bureau of Labor Statistics issued early estimates of MFP for 2003 and 2004--and the results were spectacular. According to their numbers, MFP growth was 3.1% in 2003 and 3.3% in 2004.

To put these results in perspective, this was the first time MFP growth had topped 3% since 1976. And it was the first time since the mid-sixties that the U.S. had had two straight years of plus 3% MFP growth.

If MFP keeps rising at this rate--if Americans keep finding ways to work smarter and to advantage of new technology--then the trade and budget deficits are fairly irrelevant.

Before it's here, it's on the Bloomberg Terminal.