While we still may have some surprises in the December data, it looks like 4th quarter GDP growth is likely to come in at under 2.5 percent, driven down by declines in both residential and non-residential construction, as well as a drop in equipment investment. Hours are on track to grow at about a 1.6 percent annual rate, which means that productivity growth for the quarter will be less than 1.0 percent. Yet another quarter of weak productivity should raise some eyebrows. If we take 1.0 percent as the number for the 4th quarter (which is likely high), this would be the picture since the fourth quarter of 2005: 05:4 -- -0.1% 06:1 -- 4.3% 06:2 -- 1.2% 06:3 -- 0.2% 06:4 -- 1.0% This gives an average annual growth rate of just 1.3 percent over these 5 quarters. That compares to more than 3 percent from 2001-2005. But, revisions will make the data look even worse. BLS will add in 810,000 jobs to the establishment survey as of March 2006, in its annual benchmark revision. This will lower productivity growth for the 4th quarter of 2005 and first quarter of 2006 by approximately 0.6 percentage points. Output growth in the non-farm sector was also revised down by 0.4 pp for the 3rd quarter in the final GDP report released yesterday. This will lower productivity growth by the same amount. The revised productivity data for the last five quarters will look something like: 05:4 -- -0.7% 06:1 -- 3.7% 06:2 -- 1.2% 06:3 -- -0.2% 06:4 -- 1.0% This gives an average annual rate of productivity growth over these 5 quarters of just 1.0 percent, definitely cause for concern.
--Dean Baker
