The average monthly increase in private payrolls of slightly more than 200,000 during the past six months appears to have coincided with an easing in labor productivity growth. Spending and hours data for the first half of this year point to a stepdown in productivity growth from last year’s pace. A second important question is whether trend productivity growth will slow as well.
A pronounced deceleration in structural productivity could result in more rapidly accelerating labor costs and lower profit margins, which, in turn, could lead to a deteriorating outlook for inflation. Moreover, a deterioration in trend productivity growth would have adverse consequences for our ability to meet long-term economic challenges.