Productivity growth has been trending down since 200410 and is a significant contributing factor to today's low growth environment. There’s a wide range of theories as to why productivity is in secular decline. But weak business investment, which has underperformed during this expansion, is the obvious culprit holding back a productivity-related boost to potential output.

Factory orders show companies are still reluctant to invest Sources: U.S. Census Bureau, FS Investments. FACTORY ORDERS SHOW COMPANIES ARE STILL RELUCTANT TO INVEST Orders Shipments 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% January 2010 July 2017

We will be watching: Monthly durable goods orders and shipments data offers a timely update of business investment. Business confidence measures have improved lately, but until we see machinery orders and bricks and mortar spending, we expect businesses to proceed with caution.

Risks to our view: A risk does not have to be a negative! The risk here is that businesses become less cautious, sharply increase investment spending, and spur more broad-based growth in our economy. Because trend productivity is critical, productivity growth would have to recover for several years to return to the 2.2% trend seen from 1950–2000.11 Yet a robust improvement would signal potential growth could be moving up out of its stagnation.

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10 Bureau of Labor Statistics, based off of a 5-year moving average.
11 Bureau of Labor Statistics.


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