Housing and the productivity slowdown
Labor productivity growth in the United States has declined every year since 2002. In the first quarter of this year it fell below the symbolic 2% barrier, evoking bad memories of the stagflation-era economy. Over at Capital Commerce, James Pethokoukis argues that the slowdown should not be a cause for concern: [M]any economists were concerned ...
Labor productivity growth in the United States has declined every year since 2002. In the first quarter of this year it fell below the symbolic 2% barrier, evoking bad memories of the stagflation-era economy. Over at Capital Commerce, James Pethokoukis argues that the slowdown should not be a cause for concern: [M]any economists were concerned when productivity came in at just 1.6 percent last year. Was America returning to its old low-productivity ways? If so, that was a much bigger problem than the housing slowdown. But it looks like the housing slowdown itself has been making strong productivity look bad. Here is what the econ team at Goldman Sachs recently said on the topic: "We believe there is a straightforward explanation for slower productivity growth?the housing downturn. The sharp drop in homebuilding activity has not yet led to a significant decline in employment, so productivity in this sector is falling rapidly. Productivity growth in the rest of the nonfarm sector remains at a healthy 2.5 percent pace. Housing productivity should begin to improve within the year. Two factors?seasonal hiring patterns and the lag between the slowdown in home sales and the slowdown in home construction?have delayed the employment adjustment, but we expect declining residential housing employment to pull nonfarm payroll growth below 100,000 jobs per month in the spring and early summer."Dale Jorgensen, productivity guru and Harvard economics professor, told me a similar story in a chat today. This seems like a peculiar inverse of what was happening in the economy circa 2002-3 -- astounding productivity gains that were not matched by wage or employment growth. One wonders if this means that, for the next year, the U.S. economy will observe the obverse of marginal productivity increases but robust wage and employment growth. Profit margins have been sufficiently high to allow this to happen -- though I confess I fail to see why firms would have an economic incentive to act in this fashion. Developing....
Labor productivity growth in the United States has declined every year since 2002. In the first quarter of this year it fell below the symbolic 2% barrier, evoking bad memories of the stagflation-era economy. Over at Capital Commerce, James Pethokoukis argues that the slowdown should not be a cause for concern:
[M]any economists were concerned when productivity came in at just 1.6 percent last year. Was America returning to its old low-productivity ways? If so, that was a much bigger problem than the housing slowdown. But it looks like the housing slowdown itself has been making strong productivity look bad. Here is what the econ team at Goldman Sachs recently said on the topic:
“We believe there is a straightforward explanation for slower productivity growth?the housing downturn. The sharp drop in homebuilding activity has not yet led to a significant decline in employment, so productivity in this sector is falling rapidly. Productivity growth in the rest of the nonfarm sector remains at a healthy 2.5 percent pace. Housing productivity should begin to improve within the year. Two factors?seasonal hiring patterns and the lag between the slowdown in home sales and the slowdown in home construction?have delayed the employment adjustment, but we expect declining residential housing employment to pull nonfarm payroll growth below 100,000 jobs per month in the spring and early summer.”
Dale Jorgensen, productivity guru and Harvard economics professor, told me a similar story in a chat today.
This seems like a peculiar inverse of what was happening in the economy circa 2002-3 — astounding productivity gains that were not matched by wage or employment growth. One wonders if this means that, for the next year, the U.S. economy will observe the obverse of marginal productivity increases but robust wage and employment growth. Profit margins have been sufficiently high to allow this to happen — though I confess I fail to see why firms would have an economic incentive to act in this fashion. Developing….
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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