Productivity adds the anesthetic to Powell's pain-free disinflation

© Reuters. FILE PHOTO: A job seeker leaves the job fair for airport related employment at Logan International Airport in Boston, Massachusetts, U.S., December 7, 2021. REUTERS/Brian Snyder

In what has been a somewhat unheralded surprise, that is what has been unfolding through both improvements in the number of people willing to work, including new immigrants, and also through improvements in how much each worker produces, a dynamic that lowers effective labor costs even if wages are higher.

The October employment report due on Friday at 8:30 EDT will provide updated estimates of the size of the labor force, a critical piece of the puzzle. After stalling through much of 2022, the workforce grew by 3 million workers, or about 2%, in the nine months through September. "People think trend growth over a long period of time is a little less than 2%," Powell said. But"potential growth is elevated for a year or two right now over its trend level...you're seeing actually elevated potential growth, catch up growth, that can happen" because of improvements in things like labor supply that, all things equal, allow the economy to grow faster without the same price pressures. Along with more people working, productivity adds a boost as well.

The spread of Web-based technologies was still in its relative infancy then, and the years since have produced not only more tempered productivity numbers, but a generally dismal assessment that trend growth in output per worker hour was only around 1.5%. That, coupled with sluggish population growth, is the reason Fed officials in recent years have steadily downgraded their view of the long-term trend growth in overall economic output, with the median fixed at around 1.8% since 2016.

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