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Monday, August 08, 2005

Keep Your Fed Watch Eye on the Productivity Ball

A timely reminder:

Productivity Is the Issue of the Hour for the Fed, By Edmund L. Andrews, NY Times:  …  as Mr. Greenspan prepares to retire … the Federal Reserve faces a slowdown from the torrid pace of productivity in the past several years. As shown by the big jump in jobs during July … the pool of unemployed workers is dwindling and wages are rising faster than productivity. The big question for the Federal Reserve is whether the lull is simply a return to the average pace since 1995 or a return to the doldrums that prevailed from the early 1970's to the early 1990's. … If output climbs more slowly than labor costs, companies will be under pressure to raise prices. ... contributing to inflation. Productivity growth has slowed sharply in the last year, but Fed officials and most outside specialists said this was to be expected. Productivity often surges in the early part of an economic recovery, as companies rush to meet higher demand but are still too nervous to add workers, and then slows as employment picks up. … The superheated productivity, which caused anemic job growth for three years, appears to be ending.  … But ... Dale Jorgenson, a professor at Harvard ... said last week, "We are experiencing productivity growth that is very high by historic standards, and there is nothing on the horizon to slow it down," The biggest risk, he cautioned, is not that innovation will slow down but that the United States is too dependent on foreign capital for its investments. "Productivity is zooming along because of the investment, but we are not financing much of this ourselves," he said.

We don’t know yet what will happen on the productivity front, it’s all speculative at this point, so keep you eyes open for signals regarding the growth of productivity.

    Posted by on Monday, August 8, 2005 at 01:08 AM in Economics, Monetary Policy | Permalink  TrackBack (1)  Comments (6)

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    » Productivity and the Fed from New Economist

    At the end of the day few things matter more to economists thahn productivity growth. Mark Thoma points to a Sunday New York Times piece by Edmund L. Andrews that argues Productivity Is the Issue of the Hour for the Fed (registration required):… as Mr.... [Read More]

    Tracked on Monday, August 08, 2005 at 01:56 AM


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