Blinder: Downtrend in Productivity Growth Is a Hidden Risk

Productivity growth has been slipping in recent years, but the trend isn't receiving the attention that it should, says former Federal Reserve Vice Chairman Alan Blinder, now a Princeton University economist.

Labor productivity — output per hour of work — plays an important role in determining the economy's strength, he writes in The Wall Street Journal. If the current slide in productivity growth continues, it could take a major bite out of GDP growth.

"Yet oddly, while enormous amounts of research, energy and chatter are poured into analyzing and forecasting the labor market, hardly anyone is talking about productivity — though that may be the greater source of uncertainty," Blinder says.

Productivity growth averaged 0.7 percent a year from 2010 to 2013, down from 2.6 percent in 1995 to 2010. The drop was "mysterious," he writes.

"Maybe some of the copious attention now being devoted to assessing labor-market slack should be redeployed to studying productivity growth. It might be more productive."

Productivity rose at a 2 percent annualized rate in the third quarter, decelerating from a 2.9 percent increase in the second quarter.

"The productivity numbers are respectable," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a commentary obtained by Bloomberg. Labor cost data indicate there is "no inflation risk," he said.

Expenses per worker climbed at only a 0.3 percent annualized rate in the third quarter.

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