Editore"s Note
Tilting at Windmills

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October 30, 2003
By: Kevin Drum

GOOD ECONOMIC NEWS....Wow. The economy grew 7.2% last quarter, a blistering pace. And possibly even better news is how it grew:

The major contributors to the increase in real GDP in the third quarter were personal consumption expenditures (PCE), equipment and software, residential fixed investment, and exports. The contributions of these components were partly offset by a negative contribution from private inventory investment.

Consumer demand (including cars), capital equipment, and higher exports are all great fundamentals, unlike last quarter when a big fraction of GDP growth was due to war expenses. The residential investment boom is unsustainable, I think, but even if you discount that the growth number is still terrific.

And although I'm completely unqualified to express an opinion on the subject of productivity and unemployment, I'm going to anyway based strictly on anecdotal evidence from friends in the local high tech industry. As Brad DeLong points out, the Labor Department will shortly announce that total hours worked dropped during the third quarter. If you produce more stuff with fewer people, that means the productivity of the people who are working must have skyrocketed. Is this for real?

I'm going to go out on a limb and say that it's not: companies have been afraid to hire and have been squeezing more and more work out of their white collar employees, which for some reason hasn't shown up properly in the official statistics. Today's growth number might be the thing that finally gets them off the dime and raises confidence enough to start hiring again. The result will be that productivity numbers will come back down to earth, but employment will start rising steadily.

That's a pretty good tradeoff. There are still some things to be nervous about over the long term, but I hope I'm right about the short term. We could use a few more jobs.

Kevin Drum 9:39 AM Permalink | Trackbacks

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