Is a Productivity Boom In Store for U.S.?

There are strong indications the answer is yes, which would mean a better economy and a more manageable budget deficit

- Aaron Back

The U.S. could be on the cusp of a productivity boom similar to the one triggered by internet technology in the 1990s. The outlook for the national debt, and much else, depends on it.

Worker productivity is regarded by economists as one of the most important drivers of long-term economic performance. It is essentially just the total output of the economy divided by the number of hours worked, aided by investments in technology and capital. When productivity is booming, it allows the economy to expand faster without triggering inflation. That has positive knock-on effects on all kinds of things, including the fiscal health of the federal government.

Quarterly fluctuations in productivity can be notoriously volatile. The pandemic rendered the data almost impossible to interpret, as both total output and hours worked swung violently. Recently, however, there has been a clear and highly encouraging upward trend.

Preliminary estimates from the Bureau of Labor Statistics show that total nonfarm business sector labor productivity increased 2.0% from a year earlier in the third quarter-the fifth straight quarter of growth at or above 2%. That is significant as the average rate of growth for the five years before the pandemic was 1.6%.