By Howard Schneider
JACKSON, Wyo. (Reuters) – The coronavirus pandemic touched off a scramble among U.S. firms and households to adapt their work lives and business models, with work-from-home arrangements and teleconferencing tools boosting what some employees could do, and new technology helping even the smallest cafes do more with less.
But the crisis also brought a wave of inefficiency in the form of snarled supply chains, time and money spent on cleaning and health management, and hiring difficulties that still keep some businesses below capacity.
The net result of all the tumult may, it turns out, be a wash in terms of the U.S. economy’s underlying potential, with little change in productivity or trend growth, and a still looming drag from demographics as the population ages, according to new research presented at the Kansas City Federal Reserve’s annual Jackson Hole research symposium in Wyoming.
“We find little evidence that the pandemic has so far caused substantial changes, up or down, to the economy’s sluggish pre-pandemic longer-run growth-rate,” which remains anchored between 1.50% and 1.75%, as it was before the greatest health crisis in a century, San Francisco Fed economists John Fernald and Huiyu Li wrote in the research paper.
While the innovation of the pandemic’s first months fueled a surge of productivity that some felt might raise the economy’s potential, the productivity numbers just as quickly crashed in a cyclical pattern the authors say is common during and after recessions and in this case appears to have left things largely where they were.
If some array of firms did well – and the research paper found that those where employees could telework saw “strong pandemic productivity” – problems elsewhere went in the other direction.
“The performance of goods-producing industries is poor; the performance of contact-intensive industries is atrocious,” the research paper concluded. Economy-wide, “the pandemic productivity data are not, on net, anything to get too excited about … Despite considerable commentary to the contrary, aggregate productivity has behaved in surprisingly predictable cyclical ways.”
If the risk is to one side or the other, they wrote, it is that the COVID-19 crisis at the margins “reduced the level of potential output” in the United States by depressing the number of people in the workforce.
HARD TO PREDICT
The bottom line may yet change. Productivity is considered notoriously hard to predict. Technology can take time to spread – then surprise when its impact on growth becomes apparent.
“Artificial intelligence and robots may eventually bring a massive productivity payoff – but we do not know when it will happen,” the San Francisco Fed economists wrote.
Likewise, workers who stayed out of the economy for health or other reasons may eventually return.
But the findings are notable. Fernald has been one of the Fed economists most focused on productivity, and the future landscape he outlines would be tough for Fed policymakers to navigate.
Rising productivity is the economist’s equivalent of a magic bullet. If each worker produces more per hour, the economy can still expand even if the size of the labor force itself isn’t growing. Wages can also increase without feeding inflation since an employer is getting more product to sell for each dollar paid to workers.
The opposite is also true: If productivity is poor, then either growth also remains slow or inflation pressures increase. The alternative is to bring more people into the labor market, and the choices there – more immigration or a change in birth rates – are beyond Fed policy.
(Reporting by Howard Schneider; Editing by Paul Simao)
