Okay, that's not quite right, the Wall Street Journal came though with a front page story. But the reporting on the latest productivity data was buried near the end of a story on retail sales in the NYT and nowhere to be found in the Post or on National Public Radio. Just to get people's eyes on the ball, productivity growth is a big deal. In the long-run, it determines the size of the pie that we have to cut up. I take distribution very seriously (a bit less for Bill Gates and friends is a lot more for everyone else), but the world looks much better, both in ensuring decent living standards and dealing with environmental problems like global warming, if we can sustain strong rates of productivity growth. The Labor Department reported that 3rd quarter productivity growth was flat. The quarterly numbers are very erratic, but looking back over a year productivity growth was just 1.3 percent. Since the big upturn in productivity growth in the 2nd half of 1995, there were only two quarters in 1997 when productivity growth was this slow over a 4-quarter period. While the reported productivity numbers are bad, the true numbers may prove to be even worse. As many have noted (including me), it appears that 3rd quarter GDP was overstated by as much as 0.8 percentage points by a faulty seasonal adjustment to production in the auto industry. Any overstatement in output growth would translate pretty much one to one into an overstatement in productivity growth. Also, we know that the Labor Department will be adding 810,000 jobs in its benchmark revision to the establishment survey. This will raise the number of hours worked, and thereby lower reported productivity growth over the last year by 0.2-0.3 percentage points. The point here is that we have some important evidence that we are seeing at the least a very serious cyclical downturn in productivity growth (you get cyclical downturns in a recession) and possibly the end of the upturn in productivity growth that began in 1995. Either way, this is front page news.
--Dean Baker
