Capital Markets: Observations & Insights

Productivity Drives Potential GDP ​ Productivity Pick-Up

• Economic output = labor hours x output per hour (i.e., productivity)

• Therefore, to increase long-run economic growth, we have to increase productivity growth

…And Recently Both Have Trended Lower

Productivity Drives Potential GDP…

Potential GDP

Productivity

Potential GDP

Productivity

18,000

120

4%

16,000

Productivity Index (2009=100)

100

14,000

3%

12,000

80

10,000

60

2%

8,000

6,000 $ Billions

40

1%

4,000

20

2,000

0

0

0%

Year-Over-Year Change (5-Year Average)

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: FactSet using CBO potential GDP data and U.S. Bureau of Labor Statistics productivity data as well as Alger estimates for 4Q17.

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