Caution is warranted in using recent weak productivity growth to conclude that the US has entered a “new normal,” say Cleveland Fed researchers
Does the weakness of recent data on labor productivity—the amount of real GDP produced per hour of work—indicate that we have entered a “new normal,” characterized by low economic growth? Not necessarily, say Federal Reserve Bank of Cleveland researchers Mark Bognanni and John Zito.
“The historical record warrants some caution in concluding with certainty that the average rate of productivity growth—based on roughly the past six years of data—has permanently fallen,” say the researchers. “One reason is that there have been times in the past, such as in the early 1980s, when the six-year average productivity growth has fallen to levels like those seen today, but then it has recovered substantially. The second reason is that the history of revisions to data on productivity growth suggests it is likely that the average growth rate of the past six years will be revised up in the future.”
The researchers note that in the first and second quarters of 1992, productivity growth was thought to be as weak as it is currently. “The first quarter of 1992 is the most extreme example of a general relationship in which the lower a period’s productivity growth is assessed to be in real time, the larger and more positive the typical revision turns out to be,” say Bognanni and Zito.
“While we cannot know for certain how the current data will be revised, patterns in real-time data and their subsequent revisions provide a basis for quantifying the distinct possibility that the recent weakness in productivity is partially a mirage,” say the researchers.
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Doug Campbell, email@example.com, 513.455.4479