Good News, but Where are the Jobs?
“America’s business productivity soared in the second quarter of 2003 and new claims for unemployment benefits dropped to a six-month low last week, a double dose of good news as the economy tries to get back to full throttle.” Productivity in the second quarter grew at an annualized rate of 5.7%, which is extremely high by historical standards (note that the number is still subject to revision, but even if it’s cut by 1/3, it’s still very high).
New application for jobless benefits stayed below 400,000 per week for the third consecutive week. However, a slowing of the rate of layoffs is not the same as creating more jobs (recall that the recent drop in unemployment from 6.4% to 6.2% was triggered by people abandoning their job search, not by people finding new jobs; also see Matt Stoller’s post at ISTES). But the productivity growth in the second quarter, if it reflects a trend and not an aberration, is good news in the long run: it will mean that when the economy starts expanding, inflation will not be a major concern.
On the other hand, excess capacity and the accompanying downward pressure on prices have been a major business problem of late. Because of that excess capacity, it would not be difficult for measured productivity (output divided by hours of labor) to increase quite a bit in the short run without reflecting what is typically thought to cause long run productivity growth–new, more efficient, technologies and processes (think 1990s). Time will tell. At the least, the latest news is not bad news; how good it is unknown.