When the US gross-domestic-product growth was released last Friday, the numbers were disappointing. The US economy grew at an annualized rate of just 1.2% in the second quarter, much weaker than expected. When combined with the results of the first quarter, the economy is growing at about a 1% annual rate, according to The Wall Street Journal – the worst first-half performance since 2011.
Many economists think one of the big reasons for this weak expansion is a slowdown in total-factor productivity, a phenomenon that has been occurring in the US – and, to some extent, other developed countries – since 2004.
A Deutsche Bank research note, which was sent out before the release of the GDP numbers, lamented productivity as ‘abysmal’ and a ‘substantial risk to the growth outlook.’
‘Annualized productivity growth has been just 0.9% during the current expansion, and even this low reading has been buoyed by large productivity gains early in the cycle due to massive economy-wide layoffs in the aftermath of the recession,’ the report said.
And the recent trend has been even weaker, the note said: ‘Productivity has grown at just 0.7% over the last four quarters and at an annualized pace of only 0.6% since the start of 2010.’
This ‘productivity puzzle’ was the subject of a recent episode of ‘Alphachatterbox,’ the Financial Times’ podcast about economics and business. ‘Puzzle’ refers to the seemingly paradoxical idea that our productivity isn’t going up, despite all the innovation around us, said Isabella Kaminska, the host of the podcast.
This post was published at David Stockmans Contra Corner on August 5, 2016.
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