Productivity is a cyclical variable that typically falls in recessions. However, during the most recent downturn, productivity never declined and instead continued to grow at a fairly strong pace. Moreover, after September 11, many economists feared that productivity growth would suffer a severe setback as businesses diverted resources to improving security and developing contingencies in the event of another terrorist attack.
Instead, according to Labor Department data released last week, output per hour in the nonfarm business sector has risen 5.3 percent over the past four quarters, its best performance since 1983. How should we interpret this truly extraordinary performance? Cyclical forces probably played some role.