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Understanding Productivity Growth and the Business Cycle

September 12, 2008

Analysis of:Productivity Jumps as Costs Fall | online.wsj.com

The U.S. economy is at a pivotal point, and this data release provides important information about the direction the economy may take over the next six to twelve months. There is good news and bad news in the report: Lower unit labor costs suggest that the Fed will be less worried about inflation in its upcoming meeting. On the other hand, the jump in productivity growth likely reflects downsizing by businesses rather than the onset of sustained growth. Overall the article, coupled with the labor market report released the same day, has to nudge up the likelihood of a recession. The question is really only how severe or sustained the downturn will be.

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