The productivity of labor is another source of uncertainty about how fast the economy can grow on a sustained basis. However, swings in productivity growth are extremely difficult to predict. Productivity growth was very strong through the first half of last year, partly because of delayed efficiency gains from the capital goods boom of the 1990s.
One implication of these productivity gains was that, for much of the current expansion, businesses were able to meet increasing sales with management efficiencies rather than with a large number of new hires. Another implication was that unit labor costs of businesses fell, even as the economy was gathering momentum.