MNI:US Growth Potential Sluggish Post Covid-Jackson Hole Paper

The U.S. economy's potential growth will likely remain sluggish for years after Covid-19, dashing hopes the pandemic would give way to an era of rapid productivity growth, according to research being presented Friday at the Kansas City Fed's Jackson Hole conference.

The pandemic does not seem likely to lead to sharp changes in research effort or a burst of ideas pushing the economy away from its "slow-productivity-growth trajectory," wrote San Francisco Fed economists John Fernald and Huiyu Li.

They estimate potential growth in a 1.5% to 1.75% range five to ten years out, and demographic trends mean labor supply growth is likely to remain low by historical standards.

"We find little evidence that the pandemic has so far caused substantial changes, up or down, to the economy’s sluggish pre-pandemic longer-run growth-rate path," the authors said.

Labor productivity has shown little change through the pandemic, with initially strong growth as many workers became unemployed followed by weak efficiency gains, the researchers found. Worker shortages that should reverse over time have also dragged the near-term level of potential output lower, they said. Potential output was estimated as falling 1.5pp to 2pp as of the end of 2021 due to outsized retirements and other supply factors.

One bright spot is the authors' finding that industries where it's easy to work from home have grown somewhat faster than they did pre-pandemic, but even that varies from industry to industry. Call center workers appeared to be more productive while IT professionals were less so.