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Yellen’s Alternate Reality Exposed: “Best Jobs Ever” Vs. “Worst Productivity In Decades”

Original newz story - Click here

Submitted by Jeffrey Snider via Alhambra Investment Partners,

On June 6, Janet Yellen spoke to the World Affairs Council of Philadelphia in what were highly scrutinized comments. The occasion was just a weekend in between the May payroll report that clearly unnerved her and the rest of the FOMC. Prior to that BLS publication, it was believed that a rate hike in June was all but set. Afterward, as Yellen’s speech appeared to confirm, it was a complete turnaround.

The Fed Chairman emphasized four important uncertainties facing the US economy in 2016, both immediate and long-term. The first was domestic demand, primarily consumer spending which she and other economists continue to suggest is and has been strong despite all evidence to the contrary. Second, Yellen contended more about “global turmoil”, the easy excuse that it is all the fault of overseas idiosyncrasies, especially China being China. Her fourth point was inflation where she essentially punted; she still expects it to move up to the 2% target but she also acknowledged that inherent imprecision might make the actual track of consumer prices “significantly different” (translation: we don’t really know).

Over the long run, it was her third point that is perhaps most crucial: productivity. Unsurprisingly, Yellen expressed optimism on the subject (when does she ever not?), particularly as she believes the depth of the Great Recession itself was partially responsible for yielding almost no productivity growth these past seven years (though no thoughts on why seven years weren’t yet long enough). As the economy gets stronger, in her view, investment (she didn’t specify, but I highly doubt she means even greater financial investment), R&D, and entrepreneurialism should all return more toward historical trends. This will allow wages to rise and foster higher sustained economic advance.



Over time, productivity growth is the key determinant of improvements in living standards, supporting higher pay for workers without increased costs for employers. Recent weak productivity growth likely helps account for the disappointing pace of wage gains during this economic expansion. Therefore, understanding whether, and by how much, productivity growth will pick up is a crucial part of the economic outlook.

We aren’t talking about one or two or even three years, here, productivity has been weak throughout the whole “recovery” and indeed began to decelerate at the tail end of the housing bubble. In other words, is productivity weak because of the economy, or is the economy persistently weak because of productivity? The last two Fed Chairmen have been talking about the economy picking up for years on end, perhaps businesses active in America just don’t buy it?

It’s an odd occurrence either way it can be spun, certainly in light of the “best jobs market in decades.” From the point of view of the labor statistics, the economy is robust and has been for two years. Why…