The US economy remains in a strong position, with new data released on Tuesday confirming that strength in the face of rising interest rates.
Productivity growth in the third quarter remained unchanged at a healthy 2.2% on a sequential basis, while the year-on-year rate remained unchanged at 2.0%.
“Productivity growth, which over the past year has outpaced the average business cycle, may slow in response to more flexible labor market conditions, but we expect it to continue at a strong pace,” said Nancy Vanden Houten, chief US economist at Oxford Economics. He wrote in response to the statements.
The economist said the productivity strength is “partly a response to difficult labor market conditions over the past few years” but there have been structural changes too, including “an increase in business dynamism and stronger investment in intellectual property and research and development”. “
“As a result, we believe that the growth trend in the US economy is currently exceeding 2%,” Hooten said.
Chris Rupke, chief economist at FWDBONDS, added that higher productivity trends may mean interest rates are closer to neutral than initially thought.
Roepke said the data “raises questions about how restrictive the Fed’s interest policy is.” “With productivity data like this in hand, hawks at the Fed could argue that interest rates are closer to neutral than the committee previously thought.”
The strong trend likely won’t prevent the Fed from cutting rates again next week, “but the number of rate cuts needed in 2025 remains an open question,” the economist said.
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