The US economy remains in a solid position, with new data released on Tuesday highlighting this strength in the face of high interest rates.
Productivity growth in the third quarter was unchanged at a healthy 2.2% on a sequential basis, while the year-on-year figure was unchanged at 2.0%.
“Productivity growth, which has exceeded the business cycle average over the past year, may slow in response to looser labor market conditions, but we expect it to continue at a robust pace,” said Nancy Vanden Houten, chief U.S. economist at Oxford Economics. wrote in response to the data.
The economist said productivity strength is “partly a response to the tight labor market conditions of recent years,” but that structural changes have also taken place, including “the sharp increase in business dynamism and stronger investment in intellectual property and research and development. “
“As a result, we believe that trend growth in the US economy is currently above 2%,” Houten said.
Chris Rupkey, chief economist at FWDBONDS, added that higher productivity trends could mean interest rates are closer to neutral than initially thought.
The data “raises questions about how restrictive the Federal Reserve’s interest rate policy actually is,” Rupkey said. “With this kind of productivity data, the Fed’s hawks can argue that rates are closer to neutral than the committee previously thought.”
The economist said the strong trend is unlikely to stop the Fed from cutting rates again next week, “but the number of rate cuts needed in 2025 remains an open question.”
