U.S. Productivity Growth Signals Increase of Potential GDP

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The U.S. productivity growth data continue to rise. First quarter 2019 productivity growth of 3.6% well outperformed expectations for 2.2%. As we noted a year ago, “…assuming 0.5% labor force growth and a productivity growth rate of 1.3% we are looking at a potential GDP growth rate approaching 2% —before the impact from the 2018 corporate tax rate reductions…there is a real chance to take trend GDP above 2% and possibly 3%.”

With GDP growth of 3.2% during the most recent trailing four quarters, and the unemployment rate down just 0.2% during the same period, it appears that potential GDP could be higher than previously believed. Despite the tight labor market, productivity is matching employment costs. Hence, unit labor cost declined by 0.9% in 1Q19. On a year-over-year basis, nonfarm business sector output per worker is up to 2.4%. Developments in investment (hence productivity) will be important to markets in the coming quarters.

Please follow productivity on page 65 of the Global Perspectives book.

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