Tags: Greenspan | economy | productivity | Fed

Greenspan: 'Economy's Outlook Isn't Good' Until Productivity Improves

By    |   Monday, 06 October 2014 09:10 AM

Productivity increased only 0.9 percent last year and declined an average of 1.1 percent in the first two quarters of this year.

Former Federal Reserve Chairman Alan Greenspan is concerned.

"Our productivity rate is slowing dramatically, causing slow growth in wages, and that's causing a lot of the problems in the economy over the long run," he told Fox Business Network.

"What concerns me most is that unless and until we can rectify that problem, our economy's long-term outlook is not good."

The September jobs report, released Friday, represents a "mixed" bag, Greenspan noted. Non-farm payrolls rose 248,000, and unemployment fell to a six-year low of 5.9 percent.

But the labor force participation rate dropped to a 36-year low of 62.7 percent. And average hourly earnings rose only 2 percent in the 12 months through September. Looking longer-term, wages have increased only 0.8 percent inflation-adjusted since December 2007.

So what's holding back pay raises?

"When you get significant decline in productivity growth, which we've had, that immediately spills over into the wage levels," he explained. "And that's one of the reasons why real earnings are not moving very fast at all."

Asked when the Fed might begin to raise interest rates, Greenspan responded, "It's very difficult to pinpoint when rates begin to move." Many economists predict the Fed will act around mid-2015.

But it might even be the Fed that initiates a rate increase. "It may show up in long-term interest rates and most importantly on pressure on the 25 basis points which the Federal Reserve now pays to commercial banks to hold deposits at the Fed," he argues.

"They may find that figure is too small."

In an interview with CNBC, Greenspan expressed concern that rate hikes by the Fed might cause volatility in the long end of the yield curve.

"Remember, central banks do not and cannot control longer-term rates, which are fundamentally based on discount factors of expected earnings," he said.

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Productivity increased only 0.9 percent last year and declined an average of 1.1 percent in the first two quarters of this year.
Greenspan, economy, productivity, Fed
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2014-10-06
Monday, 06 October 2014 09:10 AM
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