Slower Growth? Gee - you think? Well, that's why you guys make the big bucks

Fed Reveals New Concerns About Long-Term U.S. Slowdown

By Rich Miller - Nov 26, 2013 7:25 PM ET

Federal Reserve Chairman Ben S. Bernanke and his colleagues are suffering through their own form of cognitive dissonance: revealing new concerns about the economy’s long-term prospects even as they forecast faster growth in 2014.
Worker productivity, a key component of an economy’s health, has risen at an annual clip of 1 percent during the last four years, as the U.S. has struggled to recover from the worst recession since the Great Depression. That’s less than half the 2.2 percent average gain since 1983, according to data from the Labor Department in Washington.

 

Bernanke has portrayed the past few years’ deceleration in productivity as temporary. In an argument also espoused by Fed Vice Chairman Janet Yellen, nominated to succeed him next year, he suggested companies were forced to add workers even though economic growth was slow because they cut payrolls so much during the recession.

In a Nov. 20, 2012, speech in New York, Ben S. Bernanke, chairman of the U.S. Federal Reserve, said the financial crisis and its aftermath probably “reduced the potential growth rate” as discouraged workers dropped out of the labor force and businesses held back on investment.

“Slower growth in productivity might have become the norm,” the central bankers noted at their Oct. 29-30 meeting, according to the minutes released last week. That’s a switch from past comments by Bernanke that the deceleration probably was temporary and would end as the expansion continued.
A combination of forces may be at work. Chastened by the deep economic slump, corporate executives have reduced spending plans for factories, equipment, research and development. Startup businesses have been held back as would-be entrepreneurs find it harder to get financing from still-cautious lenders. And out-of-work Americans have seen their skills atrophy the longer they’re without jobs.

“We’re in a slow-growth period of unknown duration,” said Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel prize in economics.