Is productivity rebounding?
There might not be a slowdown in productivity growth after all: In contrast with Deloitte Chief Economist Ian Stewart’s warning in yesterday’s issue that slowdowns in productivity growth could be contributing to a new-normal of weaker economic growth, Goldman Sachs says there could be early signs of a productivity rebound. GS suggests that the perceived slowdown could be because of a financial crisis-induced “temporary hangover” effect, increased measurement error, or both.
The measurement error is small, but GS Chief Economist Jan Hatzius and his team see two reasons with the temporary hangover effects are important: “First, a decomposition of productivity into its underlying drivers shows that slower growth in capital services per hour worked has been the most important drag. This looks like a cyclical consequence of the weakness of capital spending since the financial crisis, and there are some early signs that this weakness is abating. Second, while the official productivity data remain lackluster, they are quite lagged and there are some early signs of improvement in the higher-frequency indicators. A decomposition of GS Research’s Current Activity Indicator (CAI) shows that output-related indicators have been growing more rapidly relative to employment-type indicators over the past year or so. Historically this has been associated with acceleration in the official productivity measures over time.”