NCPA - National Center for Policy Analysis

The Long Run Begins Right Now

August 8, 2003

It is quite true that jobs are slumping even as the economy gains momentum. Why the divergence? The answer is tremendous productivity growth, which is a very profitable thing, says Lawrence Kudlow.

Following a three-year business slump, firms have been doing more with less wherever they can:

  • In the seven-quarter recovery so far, annual economic growth is 2.6 percent.
  • Although nonfarm payrolls have lost 1.7 million jobs and hours worked have decreased by nearly 2 percent annually, productivity (output per hour) has increased an unbelievable 4.5 percent yearly; as a result, corporate profits are up nearly 30 percent - about the same as the stock market.
  • Order backlogs for nondefense capital goods (excluding aircraft) have increase six straight months at a 9 percent annual rate, according to the U.S. Commerce Department.

This is a classic leading indicator of corporate capital spending and job creation, notes Kudlow. When businesses put their profits to work in the next round of capital-goods investment, the jobless recovery will give way to a new job-creating cycle. Tax cuts and productivity are precisely what will boost jobs, wages, wealth and the economy's potential to grow over the long run.

Source: Lawrence Kudlow, "Coming Job-Creation Cycle to Replace Jobless Recovery," Investor's Business Daily, August 8, 2003.


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