Worker Productivity Surges, But It Isn't All Good News

Worker productivity soared in the second quarter at a 6.4 percent annual rate, its fastest pace in six years. That is good news for overall GDP growth, but bad news for unemployment as it indicates that employers are not hiring, but instead forcing more work on downsized staffs. It's going to be a very slow recovery for jobs -- as if we needed any more evidence.

Michael Mandel, the BusinessWeek economist who is quite good at pouring cold water on even the warmest news, reminds readers that worker productivity isn't such a rosy picture if you stand back a few years.
Five-year productivity growth gains have plummeted since 2005 and although the ten-year rate remains decently high, Mandel attributes this to a week year in 1999. This is, after all, the economist who has called the last 10 years a Lost Decade for jobs and GDP.

To end on a slightly happier note, today's productivity news should have implications for the Fed's rate decision tomorrow: And they should keep rates floor-scraping low. Matthew Yglesias correctly points out that a weak job market will likely keep inflation in check for the foreseeable future. Weekly hours are at ten-year lows, part-time work is nearing record highs and unemployment could still nibble at the double-digit mark later this year. All that should mean the Fed can continue to pursue an expansionary monetary policy to battle what's left of the recession without risking inflation.