Productivity “Surge” of 2007-09 melts away in new data

Until this morning, the official data showed that the U.S. productivity growth accelerated during the financial crisis. Nonfarm business productivity growth supposedly went from a 1.2% annual rate in 2005-2007, to a 2.3% annual rate in 2007-2009.  Many commentators suggested that this productivity gain, in the face of great disruptions, showed the flexibility of the U.S. economy.

Uh, oh. The latest revision of the national income accounts, released this morning, makes the whole productivity acceleration vanish. Nonfarm business productivity growth in the 2007-09 period has now been cut almost in half, down to only  1.4% per year.

This revision has political and policy consequences. Back in March, I analyzed the apparent productivity surge and  argued that it was statistically suspect.  I pointed out that:

First, the measured rapid productivity growth allowed the Obama Administration to treat the jobs crisis as purely one of a demand shortfall rather than worrying about structural problems in the economy.  Moreover, the relatively small size of the reported real GDP drop probably convinced the Obama economists that their stimulus package had been effective, and that it was only a matter of time before the economy recovered.

A more accurate reading on the economy would have–perhaps–cause the Obama Administration to spend more time and political capital on the jobs crisis, rather than on health care. In some sense, the results of the election of 2010 may reflect this mismatch between the optimistic Obama rhetoric and the facts on the ground.

Now the productivity surge of 2007-09 has vanished, and so is the pretense that the U.S. economy was able to sail   through the financial crisis with barely any problems.  It’s time to set a new economic course.

Comments

  1. And the rhetoric continues, almost unabated… “increase taxes on the rich and the corporations”. It’s just insane.

  2. Surprise, surprise, the govt as usual fucks up at “planning” the economy because they don’t know what’s actually going on. The pretense of knowledge, indeed.

Trackbacks

  1. […] 5. The “productivity surge” melts away in the new data. […]

  2. […] numbers have been corrected, we have to change the story. Michael Mandel, an Atlantic columnist, writes on his personal […]

  3. […] via Productivity “Surge” of 2007-09 melts away in new data. […]

  4. […] key result of the new numbers is that we had been overestimating productivity growth during a period when it actually was feeble.  That is not only consistent with this structural view but it plays right into it:  the high […]

  5. […] interdependent variables that contribute to the economic growth (and measurement of even these is often royally screwed up).  But you have only hundreds of observations in which to evaluate whether a particular […]

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