When the period since 1995:4 is compared to 1950-72 and 1972-95, growth in output per hour in the most recent (third) period has recovered more than two-thirds of the productivity growth slowdown registered between the first and second periods. This paper shows that all of this productivity rebound can be explained by three factors, (1) improved methods for measuring price deflators, (2) the normal procyclical response of productivity in periods like 1997-99 when output grows faster than trend, and (3) the explosion of output and productivity growth in durable goods, entirely due to the production of computers.

There has been no productivity growth acceleration in the 99 percent of the economy located outside the sector which manufactures computer hardware, beyond that which can be explained by price remeasurement and by a normal (and modest) procyclical response. Indeed, far from exhibiting a productivity acceleration, the productivity slowdown in manufacturing has gotten worse; when computers are stripped out of the durable manufacturing sector, there has been a further productivity slowdown in durable manufacturing in 1995-99 as compared to 1972- 95, and no acceleration at all in nondurable manufacturing.

However, taking account of the productivity explosion in computers, the paper arrives at relatively optimistic estimates of growth in potential GDP and benign implications for the misnamed Social Security "crisis."


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