Productivity Measures and the “New Economy”

Optimism abounds. Just look at indicators like consumer sentiment and the stock market. The good feelings partly reflect the persistent underlying strength of the U.S. economy, which surprised many observers by expanding almost 4 percent in the last 12 months. Over the past two years, the economy grew at an average annual rate of more than 3.5 percent, clear evidence for Stephen Shepard that a “New Economy” is here. No economy, however, can sustain a more rapid expansion than this unless its workforce continues to grow quickly or its workers become increasingly productive. Given that employment is expected to grow around 1 percent, Shepard’s view implies that trend productivity growth must more than double the 1.2 percent average rate it posted during the past 25 years.