Most Important Economic News Stories of 2006

Many reporters are called upon to write year-end pieces that discuss the big events of the year. In its continuing effort to be helpful to the hardworking men and women who report on the economy, BTP has five suggested topics: 1) The End of the Productivity Boom � It could be a bit early, but the evidence is mounting. Productivity growth for the last four quarters averaged 1.4 percent. (This will be revised down by about 0.2 percentage points when 810,000 addition jobs are added into the March number with the annual benchmark revision to the establishment survey.) With productivity growth now looking to be around 1.0 percent for the 4th quarter (2.5 percent consensus GDP forecast, 1.5 percent hours growth), we are looking at 4th quarter to 4th quarter productivity growth of 1.7 percent for 2006, the lowest rate since 1995 when it was 0.9 percent. Of course, this may be a cyclical slowdown associated with the onset of a recession, but that would be worth writing about too. 2) The End of the Housing Bubble � Well, nationwide housing prices are falling (don�t you love all those experts who said that this would never happen), the only debate now is how far and how fast, and how much does the economy get wrecked in the process. In any case, this is big news. The weakness in the housing market has already given a big hit to the economy, and there is likely much more to come. On the plus side, you can now buy a used copy of David Lereah�s book, Are You Missing the Real Estate Boom? on Amazon for just $1.25. 3) The Convergence of Employment Rates between the EU and the U.S. � According to the OECD, the employment to population (EPOP) ratios for prime age workers (ages 25-54) in the EU 15 and the United States had nearly converged by 2006. The remaining gap is due to lower EPOPs for women among the countries of southern Europe, where cultural factors still work to keep women out of paid employment. Several European countries with strong welfare states, such as Ireland, Sweden, and Denmark, have higher EPOPs than the United States. This should be the end of the myth that welfare state protections lead to unemployment. 4) China�s GDP Crosses $10 Trillion � Reporters typically refer to the size of China�s economy using the exchange rate of measure GDP. This GDP measure takes the value of China�s GDP in its own currency, and then converts this to dollars using the official exchange rate. Economists typically use purchasing power parity measures of GDP to assess a country�s economy. By this measure, China�s GDP would have crossed the $10 trillion mark at some point in 2006, the second country in the world to reach this output level. If China continues on its current growth path, its economy will exceed the size of the U.S. economy in 4-5 years. Few observers recognize the size of China�s economy and therefore its potential economic, military, and political power in the world. Look for an awakening at the 2008 Olympics in Beijing. 5) The Continuation of Strong Growth in Argentina � Argentina defaulted on its debt in December of 2001. It repeatedly refused to come to terms with the IMF, even as the economy sunk into a severe recession. Argentina eventually crafted a deal with its creditors under which they got around 30 cents on the dollar. This behavior prompted outrage among the economic establishment and especially at the IMF, where the country became known as �the A-word.� The experts repeatedly projected imminent disaster as the economy began to turn around briskly in the spring of 2002. Argentina�s economy has been growing at more than a 7.0 percent annual rate ever since. In the latest World Economic Outlook, the IMF projects that Argentina�s economy will turn in a solid growth rate of 6.0 percent in 2007, its fifth year of recovery.