The Fed's latest Monetary Policy and Economic Outlook projects GDP growth in the 2.5-2.75 percent range for 2008, with the unemployment rate essentially holding constant. This implies approximately 1.0 percent labor force growth (@1,400,000 jobs). If the labor force grows by 1.0 percent and output grows by 2.5-2.75 percent, then productivity would be growing at between a 1.5-1.75 percent annual rate. This is pretty much back to 1.5 percent annual rate of the 1973-1995 slowdown.
The Fed may be assuming that cyclical factors are temporarily depressing productivity growth now and through 2008, so that there will be an upswing in later years, but this projection warrants more attention than it has received.
[Update: Greg Ip was on top of this on the front page on the WSJ last week. He is the one of the few economics reporters who has been paying attention to the recent trend in productivity data.]
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