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The Trump administration is celebrating the latest data on growth, employment and productivity. Kevin Hasset, the head of the Coucil of Economic Advisors and apparently auditioning for a job on the FED, celebrated: “productivity is going through the roof.” You may call me a party-pooper, but I cannot join in the festivities.<\/p>\n
The problem is that productivity, defined as output per man-hour, can never be measured. It is what economists and econometricians call a “residual”, i.e. it is calculated by dividing GDP, itself an estimate, by an estimate of the number of hours worked.<\/p>\n
It follows that productivity can appear to be going up for various reasons. If employment drops, or GDP is overestimated, productivity can appear to go up. If GDP were to stagnate and employment were to drop, the calculated productivity would appear to go up, all the while the whole economy was headed for a recession.<\/p>\n
In its simplest form, GDP is defined as consumption plus investment plus government spending plus exports minus imports. At present, various external effects, from the government shutdown to the massive (over-) investments in IT infrastructure, as well as the reduction of imports, in real terms, due to heavy import duties, combine to yield estimates of GDP and GDP growth which, in my opinion at least, are overoptimistic.<\/p>\n
At the same time data on employment, on which estimates of hours worked are based, are confusing. On the one hand, employers are creating few jobs. Overall job growth was less than 50K per month in the recent past, the lowest since 2020. At the same time the unemployment rate is falling. This is only possible if the supply of workers fell faster than the number of jobs offered.<\/p>\n
Usually, the supply of workers contracts when discouraged workers leave the workforce and thus no longer count as “unemployed”. In addition, the supply of workers is currently also depleted by the aggressive mass expulsion of mainly low paid “illegal” workers by the ICE. \u00a0No wonder the average hourly compensation of the remaining workforce goes up. It is not because people are paid more, but simply due to the elimination of a large number of low paid workers in the mix on which the average is based.<\/p>\n
So, we have a situation where we have a suspiciously high estimate of GDP and GDP growth and falling labor input. It follows that productivity, estimated by dividing the former by the latter, goes up. In this situation, productivity “going through the roof” is not necessarily a reason for jubilation.<\/p>\n
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The Trump administration is celebrating the latest data on growth, employment and productivity. Kevin Hasset, the head of the Coucil of Economic Advisors and apparently auditioning for a job on the FED, celebrated: “productivity is going through the roof.” You may call me a party-pooper, but I cannot join in the festivities. The problem is […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","_s2mail":"yes","footnotes":""},"categories":[1],"tags":[],"class_list":["post-581","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/blog.dafko.ch\/index.php?rest_route=\/wp\/v2\/posts\/581","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.dafko.ch\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.dafko.ch\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.dafko.ch\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.dafko.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=581"}],"version-history":[{"count":2,"href":"https:\/\/blog.dafko.ch\/index.php?rest_route=\/wp\/v2\/posts\/581\/revisions"}],"predecessor-version":[{"id":584,"href":"https:\/\/blog.dafko.ch\/index.php?rest_route=\/wp\/v2\/posts\/581\/revisions\/584"}],"wp:attachment":[{"href":"https:\/\/blog.dafko.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=581"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.dafko.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=581"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.dafko.ch\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=581"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}