Editorial: Turning Point
It has been overlooked by many that one of the fundamental contributors to a strong economyproductivity growthhas stubbornly insisted on remaining healthy, even while some parts of the so-called “new economy” like the fabled dot.coms have crashed and burned. This is crucial because productivity growth is about as close as you can get to being the Rosetta Stone of the economy. While the fads du jourand those who follow themcome and go, the real rock-solid foundation of a healthy economy is productivity growth.
During the first two full quarters of the official recession, productivityoutput per hour workedaveraged 1.8 percent growth, compared with an average of 0.14 percent in the first two quarters of the previous nine recessions, Steve Liesman reported in The Wall Street Journal. In the same report Dale Jorgenson of Harvard University and Kevin Stiroh of the New York Federal Reserve Bank say that the likely scenario for productivity growth over the next decade is a robust 2.24 percent annually, just a bit less than the 2.36 percent that fueled the economic surge from 1995 to 2000. When productivity rises, employers can pay higher wages because they are producing more with less. And output grows without straining resources, ameliorating inflation. The result: a bigger economic pie!
Even though unemployment hit a 5-1/2-year high in December, the number of hours the typical manufacturing employee worked in December rose sharply. Writing in The Wall Street Journal, Greg Ip notes that the work week often expands prior to an upturn in the overall economy, because as sales rise, employers tend to ask current employees to work longer instead of hiring new employees, until they are confident that sales growth will continue.
Manufacturing activity rose in December for the second consecutive month, according to Bloomberg News, reflecting increases in production and new orders and signaling that the worst of the 17-month factory slump may be over. In another positive sign, industrial metals prices, in a slump for the past year, appear to be rising, which some analysts say may indicate the beginning of a modest economic recovery. Writing in the Chicago Tribune, Melita Marie Garza notes that metals prices often tend to rise, before signs of recovery are visible elsewhere, when manufacturers prepare to ramp up production again.
Not all of the signs are positive, of course. Ford and Motorola both announced more job cuts recently. GM opened a new plant in Lansing, MI, but GM employment in the area is half what it was a few years ago. But, both favorable and unfavorable trends are typical as the economy begins to rebound from recession. There seems to be no doubt, however, that we have reached or passed the turning point.