Transcripts

"Commentary"-What The 4th Quarter Says About The Economy

SUSIE GHARIB: The fourth quarter's productivity number is due out later this week. Tonight's commentator says it could give us a better view of the economy's health. He's Michael Mandel, chief economist at "BusinessWeek."

MICHAEL MANDEL, CHIEF ECONOMIST, BUSINESSWEEK: The list of economic problems seems never-ending: weak job growth, falling home prices, slowing consumer spending. But there's one problem which gets far too little attention. Productivity growth, long a source of strength, is slowing. If this trend continues, it could spell even more bad news for the U.S. economy.

Let's look at the numbers. The five-year productivity growth rate stands at 2.2 percent as of the third quarter of 2007. That's down from 2.8 percent just a year ago. And it could go lower. A key piece of data comes out on Wednesday, when the Bureau of Labor Statistics reports on productivity growth for the fourth quarter. That number will be either very low or negative --suggesting that the long-term trend is slower than we thought.

What does this mean? First, as productivity growth sinks, growth slows and it becomes harder for consumers and businesses to pay back their loans. Not a good thing in this environment. Second, a bad productivity number puts Ben Bernanke in a squeeze. He might like to cut interest rates more, but slowing productivity growth raises the odds of inflation. The result: a return, perhaps, to the stagflation of the 1970s.

I'm not saying that this is definitely going to happen. Productivity has proven to be marvelously unpredictable in the past. But whether you are an investor, a worker, or a voter -- or all three -- it is productivity that will determine whether this current slowdown turns into something worse. I'm Mike Mandel.