The news reports on the release of revised data for 2nd quarter GDP missed the fact that output in the nonfarm business sector was revised down by 0.4 percentage points. This means that (ignoring rounding) productivity growth for the quarter should also be lowered by 0.4 pp to a 1.2 percent annual rate. At this point, the consensus estimate for 3rd quarter GDP growth is about 2.5 percent, which translates into a 1.5 percent rate of productivity growth, assuming hours grow at a modest 1 percent annual rate.
Productivity growth has clearly slowed from its extraordinary 3.6 percent annual rate over the years 2002-04. If the third quarter growth comes in at close to 1.5 percent, then the year over year rate (3rd quarter 2005 to 3rd quarter 2006) would be under 2.0 percent. That would be news.
-- Dean Baker