Here’s why productivity isn’t growing: The data is wrong, says Paulsen
Wells Capital Management's chief investment strategist, Jim Paulsen, on Friday said he has a simple explanation for why U.S. productivity is lagging while other economic measures rise.
The data is being misstated, he says.
Such a claim is not unprecedented. Former Federal Reserve Chairman Alan Greenspan famously questioned whether productivity was accurately reflecting output in the mid-1990s when the country was in the midst of a technology revolution.
The Labor Department on Tuesday reported U.S. nonfarm productivity — or hourly output per worker — unexpectedly fell in the second quarter , dropping at a 0.5 percent annual rate compared with expectations for a 0.4 percent rise. The report marked the third straight quarterly decline in productivity.
Paulsen said he believes something is amiss because today's productivity data is out of sync with the long-term historical trend.
Throughout the post-World War II era, productivity grew faster than normal when real wages also exceeded average growth, at least until the economic recovery that began in 2009, Paulsen said. But throughout the seven-year recovery, real wages have grown above average, while productivity has lagged the historical average.
"What that means is corporations in this country are paying a resource more of their precious sales dollar — more and more and more — and they're getting less and less and less. I don't think that's probably true. I think one of those things are misstated," he told CNBC's "Squawk Box."
Since productivity is more difficult to measure, Paulsen said he believes that piece is what is being misstated.
"If productivity is stronger, then so is growth, which might explain why profits have done so well, why auto sales are at record highs, why we've returned to full employment," he said. "It might explain a lot of things that are tough to explain if we're really only growing sub-2 percent," he said.
Paulsen said he sees evidence of a global economic bounce as central banks around the world ease interest rates to stimulate growth and the U.S. Federal Reserve remains sidelined in its bid to guide rates higher. As evidence, he noted that indexes of economic surprises are mostly higher.
"I think that synchronized policy stimulus might result in a synchronized global bounce, and I kind of think the markets are reflecting that a little bit," he said.
All three major U.S. stock market averages closed at record highs Thursday, a feat Wall Street has not accomplished since December 1999.
Continuous economic growth is the glue that keeps together the low-rate-fueled rise in stock prices, said Tony Crescenzi, market strategist at Pimco. In his view, current growth is sufficient to provide enough cash flow to allow companies to dole out dividends and pay bond investors, but economies around the world are merely growing at stall speed, creating a risky situation.
In such circumstances, investors need to be very selective about what they add to their portfolio, he told CNBC's "Squawk on the Street" on Friday.
"We're looking for securities that will bend but not break if the many stressful scenarios that many people envision do come about," he said. Those include a number of shocks that could emanate from China, the global growth engine, as well as fallout from Britain's vote to leave the European Union.
The diminishing impact of central bank monetary stimulus on economies after years of intervention also raises risks and should make investors leery of merely buying the market, he said.
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