There is no productivity problem.

You’ve probably heard about the awful US productivity numbers for the 3rd quarter (productivity roughly flat, instead of rising as it usually does, and this on top of unimpressive productivity growth in the 3 preceding quarters). If you’re a regular reader of my blog, you shouldn’t be surprised, and if you agree with the argument I made here, you shouldn’t be upset. The 3rd quarter is part of a cyclical downturn in productivity growth. It’s perfectly normal, and in this case, even predictable, and it does not mean that the era of rapid productivity growth is coming to an end.

Let’s take a look at the numbers for the last 4 productivity cycles. And let’s stack the deck against the current cycle by measuring from peak to peak and assuming that we have not yet reached the peak. (Obviously, we are past the peak, and if we wanted to measure accurately from peak to peak, we would have to leave off the weaker numbers for the last 2 quarters.) OK. From 1986Q1 to 1990Q2, business sector productivity rose at an average annual rate of 1.4%. From 1990Q2 to 1994Q4, the rate was 1.6%. From 1994Q4 to 2000Q2 it was 2.5%. From 2000Q2 to 2006Q3 it has been 2.8%. Revisions to employment statistics might shave a tenth of a percentage point off that average and give us 2.7%. Not a rate that I would complain about.

It’s always possible that the longer-term trend of productivity growth has also slowed, just as it’s possible that the US is already in a recession. So far, though, we don’t have evidence that either of these propositions is true.