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The recent market correction and sharp jump in volatility has brought a renewed focus on inflation and interest rates. But what about productivity?

March 16, 2018

Investors are beginning to look closer at the tight labor market and recent tax overhaul and make a connection to the potential for rising prices and an increasingly aggressive Federal Reserve Bank. What is getting less attention is the critical role that productivity could play in forestalling those dangers. Or not.

In its new Market Pulse: “All Eyes on Productivity,” QMA’s Global Multi-Asset Solutions team explains why productivity growth is one of the metrics it is watching for clues to the staying power of the current economic and market cycle. The team notes that the past decade of anemic productivity growth would ordinarily be a cause for pessimism, but highlights the early signs of a productivity pickup, and how this could yet spawn a new virtuous cycle of rising wages, benign inflation conditions and higher GDP growth.

Among the hopeful signs:

  • According to the Bureau of Labor Statistics, the U.S. should expect to see an increase in the share of jobs held by those aged 25-44, which should translate into a productivity bump over the next decade.
  • Key components of business investment categories in the U.S. Bureau of Economic Analysis’s report on U.S. GDP growth have seen investment rebounding since the start of 2017.
  • Higher investment directly and indirectly improves productivity as firms increase use of technology and new practices.

Read QMA’s Market Pulse: “All Eyes on Productivity.” To interview a member of QMA’s Global Multi-Asset Solutions team for a view on market trends, please contact Judith Flynn.

Contact(s)

Judith Flynn
973-802-9939
judith.flynn@prudential.com