Next Year's Analyses
Next February the Commerce Department's Bureau of Economic Analysis is going to release its first estimates of production and productivity for the year 2002. When they do, everyone is going to sit up and take notice--because the numbers will be very surprising. We today already know (although very few think about it) what those numbers will be in rough outline: some 13/16 of the data for the year-to-year growth rates from 2001 to 2002 is already baked in the cake. So let's take a look at what next February's data releases are going to show:
The growth rate of output per hour between 2001 and 2002 is going to be absolutely huge. Labor productivity growth will--unless our forecasts of what has happened in the third quarter and will happen in the fourth quarter are really, really off--be faster than in any year since the Korean War. The extraordinarily, ridiculously high productivity growth rates in the fourth quarter of 2001 and the first quarter of 2002 guarantee it.
Labor productivity growth in 2002 relative to 2001 is a far cry from the 0.9 percent per year of the period from the mid-1970s productivity slowdown to the mid-1990s. Labor productivity growth in 2002 relative to 2001 is even a far cry from the 2.5% per year of 1996-2000 (or the 2.1% per year of 1996-2001). We know, arithmetically, where this productivity growth came from: output rose in the fall of 2001 and the winter of 2002 even as American businesses shed workers and cut back on hours. We don't know much about the economic processes that allowed businesses to increase their productivity so much as they tried to deal with the late recession (1992 and 1971, also end-of-recession years, saw rapid productivity growth, but not this rapid). The drop in productivity growth in the recession year 2001 was not unanticipated: productivity growth always falls in a recession year (and, indeed, productivity has fallen in three of the five previous recession years). But the strong bounceback of productivity growth this year was not something that I had anticipated.
The relatively slow growth of aggregate demand that we see in 2002--a level of real output growth that looks like 2.5 percent per year--coupled with rapid productivity growth means that 2002 is turning out to be a lousy year for the American worker. It looks as though America's workers will work 2.1 percent fewer hours in 2002 than in 2001--and 3.3 percent fewer hours than in 2000. If you wonder why America's workers are not as happy as in past years, even though the recession is over, just look at the graph below: there is more slack in the labor market today than in any year since 1994.
