Thursday, January 17, 2013

Has the 'Great Stagnation' Hit?


My latest in Bloomberg View discusses the Great Stagnation hypothesis:
Seeking to explore whether the U.S. is truly headed toward another period of stagnation, I produced a monthly data set of output per man-hour in manufacturing going back to 1939, based on composite data from the Bureau of Labor Statistics and the Federal Reserve. The BLS data on the manufacturing sector -- which tends to drive changes in productivity throughout the entire economy -- are quarterly and only go as far back as 1987, eight years before similar quarterly data for nonfarm business productivity became available.

The increased range and frequency of my data set allows us to see the long-term historical trends of productivity growth. It doesn't look good.
The worriers are right to see an incipient return of the 70s productivity slowdown. In the manufacturing sector, the 10-year growth rate of productivity has fallen by more than half in the last decade.

Over the period from 1994 to 2004, the height of the productivity boom, output per man-hour increased by 66 percent. Between 2002 and 2012, productivity growth decreased to about 30 percent. Unless the recent increases in productivity turn into an immediate surge, the U.S. will probably see the slowest manufacturing productivity growth in nearly 30 years.

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