Supply Side of the Economy Is Flashing Strength
Comment of the Day

April 29 2019

Commentary by Eoin Treacy

Supply Side of the Economy Is Flashing Strength

Thanks to a subscriber for this article by John Hilsenrath for the Wall Street Journal. Here is a section:

On Thursday, the Labor Department will report its estimate of the productivity growth of U.S. workers in the first quarter. Given what’s already known about how many hours Americans worked and how fast output grew, economists are optimistic. Macroeconomic Advisers, a modeling firm, estimates productivity was up 2.3% in the first quarter from a year earlier. If that proves correct, it would be the largest increase since 2010, when the economy was bouncing back from recession, a time in the business cycle when productivity growth tends to be high. Between 2010 and 2017, productivity growth averaged just 1% a year.

On Friday the Labor Department will release its monthly job market report. As always, much attention will be focused on hiring and unemployment. Also deserving attention are fresh estimates of the growth of the labor force. In the first quarter, it grew 1% from a year earlier, double the rate of growth it registered between 2010 and 2017. An aging population is weighing on growth, but rising wages and more job opportunities appear to be drawing people— particularly women—off the sidelines and into the workforce, and keeping older workers on the job longer than usual.

Add productivity growth of around 2% with labor force growth of around 1%, and you might have a formula for lasting 3% growth in economic output that doesn’t require a Fed response to slow it.

Eoin Treacy's view

Productivity growth is the holy grail for economic expansions and technological innovation is a major component in delivering it. Record low unemployment, workers staying on the job later in life coupled with artificial intelligence, cloud computing, the app-based economy and automation are driving this trend of improvement. Productivity growth is a necessary component of a secular bull market and this one will be no different.

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