By Stuart Berry of the Bank’s International Economic Analysis Division and David England of the Bank’s Monetary Assessment and Strategy Division.
Annual labour productivity growth in the United States has averaged 2.8% a year since 1996, compared with an average rate of 1.6% during the preceding 25 years. This marked increase in productivity growth has been a key component of what many commentators have suggested is a ‘new economy’. Given the US slowdown since the second half of 2000, a key question is the extent to which these gains reflect structural improvements, rather than cyclical factors. The evidence so far points towards a large role for structural improvements in productivity. If these gains prove to be more cyclical, however, this would have important implications for corporate performance, financial markets and, ultimately, output and inflation.