Slow Productivity Growth Likely the Norm for the Foreseeable Future 
says SF Fed President Williams

May 13, 2016

Sacramento, California – It’s “more likely than not” that slow productivity growth “is both real and here to stay,” said John C. Williams on Friday. However, the San Francisco Fed president told the Sacramento Economic Forum, this should not cause alarm. “While the days of 2½ to 3 percent growth are behind us, at least for the foreseeable future, it isn’t the end of the world. We can still run a strong economy.” Williams pointed out that “GDP grew at 2 percent last year, we added 2¾ million jobs, and I forecast a 2016 that looks a lot like 2015 with continued employment gains, steady GDP growth, and progress on our inflation goal.”

Williams also addressed speculation that current measures of productivity fail to accurately account for technology and web-based business. “Are we using outdated models to try to assess the next-generation engine of growth? The short answer is ‘no.’ A recent study shows that mismeasurement of innovation does not account for the slowdown in productivity growth in any meaningful way.”

Explaining the recent slowdown, Williams said, “In the past, great spurts of productivity have resulted from game-changing innovation … The last instance was the first tech boom, which ushered in a decade of strong productivity growth starting in the mid-1990s.” The difference between now and then, he said, is that “in the mid-1990s, businesses throughout the economy used those new technologies to change how and what they produced. They became much more efficient and spread their reach. In the more recent tech boom, a lot of the innovation and new products are directed at our leisure time, which may enrich our lives, but doesn’t have the same groundbreaking effect on how businesses operate.”

Noting that unemployment had reached his estimate of the natural rate, and that he foresees inflation rising to meet the Fed’s 2 percent goal in the next two years, Williams reasserted his sentiment that the U.S. economy is, overall, “definitely looking good.”

Matthew Schiffgens
Federal Reserve Bank of San Francisco
(415) 974-3246

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