The document discusses economic potential and productivity. Economic potential is the maximum possible output of an economy if all resources are used efficiently, while productivity measures current output. The formula for potential is potential = productivity + workers. However, in the long run changes in the workforce are small, so potential essentially equals productivity. Higher productivity currently means the economy is operating below its potential output level. This surplus productivity implies very low interest rates for a prolonged period.

1. Productivity & Potential
Charts & Text by Paul Winghart, Economic Strategist

2. Economic Potential is a measure of WHAT an
economy COULD produce if all factors of
production were utilized at peak efficiency.

3. Economic Potential is a measure of WHAT an
economy COULD produce if all factors of
production were utilized at peak efficiency.
Economic Productivity is a function of total
output produced over a period of time.

4. Economic Potential is a measure of WHAT an
economy COULD produce if all factors of
production were utilized at peak efficiency.
Economic Productivity is a function of total
output produced over a period of time.
Productivity is also a component of Potential

5. Economists rarely agree on anything
but this formula for calculating an
economy’s potential has so far stood
the test of time:

6. Economists rarely agree on anything
but this formula for calculating an
economy’s potential has so far stood
the test of time:
POTENTIAL

7. Economists rarely agree on anything
but this formula for calculating an
economy’s potential has so far stood
the test of time:
POTENTIAL =

8. Economists rarely agree on anything
but this formula for calculating an
economy’s potential has so far stood
the test of time:
POTENTIAL = PRODUCTIVITY

9. Economists rarely agree on anything
but this formula for calculating an
economy’s potential has so far stood
the test of time:
POTENTIAL = PRODUCTIVITY +

10. Economists rarely agree on anything
but this formula for calculating an
economy’s potential has so far stood
the test of time:
POTENTIAL = PRODUCTIVITY + WORKERS

11. Economists rarely agree on anything
but this formula for calculating an
economy’s potential has so far stood
the test of time:
POTENTIAL = PRODUCTIVITY + WORKERS
Since it is a function of moving parts,
economists continually attempt to keep
tabs on changes in potential.

12. One way to do just that is to employ a little
calculus and take the derivative of the
function to find the sensitivity to change.

13. One way to do just that is to employ a little
calculus and take the derivative of the
function to find the sensitivity to change.
Δ POTENTIAL =

14. One way to do just that is to employ a little
calculus and take the derivative of the
function to find the sensitivity to change.
Δ POTENTIAL = Δ PRODUCTIVITY

15. One way to do just that is to employ a little
calculus and take the derivative of the
function to find the sensitivity to change.
Δ POTENTIAL = Δ PRODUCTIVITY +

16. One way to do just that is to employ a little
calculus and take the derivative of the
function to find the sensitivity to change.
Δ POTENTIAL = Δ PRODUCTIVITY + ΔWORKERS

17. One way to do just that is to employ a little
calculus and take the derivative of the
function to find the sensitivity to change.
Δ POTENTIAL = Δ PRODUCTIVITY + ΔWORKERS
Δ = a change in economic potential is
equal to the change in productivity plus the
change in the workforce with respect to
potential.

19. Starting with the workers component it is
evident that in the short-run changes in the
workforce can be very volatile.

20. 3 4
16
38
81
166
198
125
73
38
15 7 14
-0.6%
or less
-0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
or
greater
Monthly Change in the Unemployment Rate 1948 - Present
Data Source: Bureau of Labor Statistics

21. However, over the long-run, changes in the
workforce are very much muted.
3 4
16
38
81
166
198
125
73
38
15 7 14
-0.6%
or less
-0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
or
greater
Monthly Change in the Unemployment Rate 1948 - Present
Data Source: Bureau of Labor Statistics

22. However, over the long-run, changes in the
workforce are very much muted.
3 4
16
38
81
166
198
125
73
38
15 7 14
-0.6%
or less
-0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
or
greater
Monthly Change in the Unemployment Rate 1948 - Present
Data Source: Bureau of Labor Statistics
Over 96% of
the data are
in this 0.8
percent
range.

23. However, over the long-run, changes in the
workforce are very much muted.
3 4
16
38
81
166
198
125
73
38
15 7 14
-0.6%
or less
-0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
or
greater
Monthly Change in the Unemployment Rate 1948 - Present
Data Source: Bureau of Labor Statistics

24. However, over the long-run, changes in the
workforce are very much muted.
3 4
16
38
81
166
198
125
73
38
15 7 14
-0.6%
or less
-0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
or
greater
Monthly Change in the Unemployment Rate 1948 - Present
Data Source: Bureau of Labor Statistics
The average monthly change
in the unemployment rate
since 1948 is just 0.01% with
a 0.20% standard deviation!
That is with a sample size of
over 670 months. One of the
largest economic data sets
available.

25. However, over the long-run, changes in the
workforce are very much muted.
3 4
16
38
81
166
198
125
73
38
15 7 14
-0.6%
or less
-0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
or
greater
Monthly Change in the Unemployment Rate 1948 - Present
Data Source: Bureau of Labor Statistics
The average monthly change
in the unemployment rate
since 1948 is just 0.01% with
a 0.20% standard deviation!
That is with a sample size of
over 670 months. One of the
largest economic data sets
available.

26. However, over the long-run, changes in the
workforce are very much muted.
3 4
16
38
81
166
198
125
73
38
15 7 14
-0.6%
or less
-0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
or
greater
Monthly Change in the Unemployment Rate 1948 - Present
Data Source: Bureau of Labor Statistics

27. However, over the long-run, changes in the
workforce are very much muted.
3 4
16
38
81
166
198
125
73
38
15 7 14
-0.6%
or less
-0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
or
greater
Monthly Change in the Unemployment Rate 1948 - Present
Data Source: Bureau of Labor Statistics
The distribution of the monthly change in the unemployment rate takes on a bell-curve
shape A bell-shape curve has statistic properties unique onto itself.

28. However, over the long-run, changes in the
workforce are very much muted.
3 4
16
38
81
166
198
125
73
38
15 7 14
-0.6%
or less
-0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
or
greater
Monthly Change in the Unemployment Rate 1948 - Present
Data Source: Bureau of Labor Statistics

29. Taking into account the relative stableness
of the workforce over the long-run, we can
justify that…

30. Taking into account the relative stableness
of the workforce over the long-run, we can
justify that…
ΔWORKERS = 0

31. Taking into account the relative stableness
of the workforce over the long-run, we can
justify that…
Δ POTENTIAL = Δ PRODUCTIVITY + ΔWORKERS
ΔWORKERS = 0
so that this…

32. Taking into account the relative stableness
of the workforce over the long-run, we can
justify that…
Δ POTENTIAL = Δ PRODUCTIVITY + ΔWORKERS
ΔWORKERS = 0
so that this…
is actually this…
Δ POTENTIAL = Δ PRODUCTIVITY + 0

33. Taking into account the relative stableness
of the workforce over the long-run, we can
justify that…
Δ POTENTIAL = Δ PRODUCTIVITY + ΔWORKERS
ΔWORKERS = 0
so that this…
is actually this…
Δ POTENTIAL = Δ PRODUCTIVITY

34. Δ POTENTIAL = Δ PRODUCTIVITY

35. Δ POTENTIAL = Δ PRODUCTIVITY
Remember, the change in the workforce
isn’t exactly 0 so productivity isn’t pure
potential, but it’s close…

36. Δ POTENTIAL = Δ PRODUCTIVITY
Remember, the change in the workforce
isn’t exactly 0 so productivity isn’t pure
potential, but it’s close…
like Ivory Soap.

37. Analyzing trends in productivity give
economists the best clues as to changes in
what the economy could grow at, i.e.
potential GDP.

38. Analyzing trends in productivity give
economists the best clues as to changes in
what the economy could grow at, i.e.
potential GDP.
By way of comparison, Gross Domestic
Product, or GDP, is a quarterly summation
of what the economy is actually growing at.

40. And oh what a trend! For the first time in
post-war history, productivity growth is
consistently outpacing that of GDP growth.

41. That means the gap between what the
economy can grow at and what it is
growing at is getting larger.

42. That means the gap between what the
economy can grow at and what it is
growing at is getting larger.
Potential GDP
Realized GDP
roductivityP

43. That means the gap between what the
economy can grow at and what it is
growing at is getting larger.
roductivity
P

44. That means the gap between what the
economy can grow at and what it is
growing at is getting larger.
Potential GDP
Realized GDP
roductivity
P
O
U
T
P
U
T

45. Surplus productivity means surplus
potential which also means a much wider
than normal output gap.

46. Surplus productivity means surplus
potential which also means a much wider
than normal output gap.
Since the economy cannot adequately
maintain enough leverage to keep up with
its potential, any GDP growth does not feel
much like growth at all.

47. 0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
Apr-53
Nov-56
Jun-60
Jan-64
Aug-67
Mar-71
Oct-74
May-78
Dec-81
Jul-85
Feb-89
Sep-92
Apr-96
Nov-99
Jun-03
Jan-07
Aug-10
Mar-14
Oct-17
Constant Maturity 10yr US Treasury Note, 1953 - present

48. Surplus productivity therefore means very
low rates of interest and inflation for a very,
very long time.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
Apr-53
Nov-56
Jun-60
Jan-64
Aug-67
Mar-71
Oct-74
May-78
Dec-81
Jul-85
Feb-89
Sep-92
Apr-96
Nov-99
Jun-03
Jan-07
Aug-10
Mar-14
Oct-17
Constant Maturity 10yr US Treasury Note, 1953 - present

49. Surplus productivity therefore means very
low rates of interest and inflation for a very,
very long time.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
Apr-53
Nov-56
Jun-60
Jan-64
Aug-67
Mar-71
Oct-74
May-78
Dec-81
Jul-85
Feb-89
Sep-92
Apr-96
Nov-99
Jun-03
Jan-07
Aug-10
Mar-14
Oct-17
Constant Maturity 10yr US Treasury Note, 1953 - present
Surplus Productivity

50. Thank you for watching!
Paul Allen Winghart
www.surplusproducivity.com
pwinghart@surplusproductivity.com (email)
SurplusProductivity@SProductivity (Twitter)
http://www.linkedin.com/pub/paul-winghart/12/779/390 (LinkenIn)
The material contained herein is not a product of any research department . Nothing herein constitutes a recommendation of any security or regarding any issuer;
nor is it intended to provide information sufficient to make an investment decision. The information contained in this communication has been compiled by
surplusproductivity from sources believed to be reliable, but no representation or warranty, express or implied, is made by surplusproductivity, its affiliates or any
other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this communication constitute surplusproductivity judgment
as of the date of this communication, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this
communication constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients
and may have been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services
contained in this communication may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about
the suitability of such investments or services. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original
capital may occur. Every state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment
products which may be offered to their residents, as well as the process for doing so. As a result, any specific securities discussed in this communication may not
be eligible for sale in some jurisdictions. This communication is not, and under no circumstances should be construed as, a solicitation to act as securities broker
or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction to
the fullest extent permitted by law neither surplusproductivity nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or
consequential loss arising from any use of this communication or the information contained herein. No matter contained in this document may be reproduced or
copied by any means without the prior consent of surplusproductivity may buy from or sell to customers on a principal basis in the securities or related derivatives
that are the subject of this communication. Additional information is available upon request. As of this time, this material is free of charge, so long as you link
back to this site and source any information you may use

51. Thank you for watching!
Paul Allen Winghart
www.surplusproducivity.com
pwinghart@surplusproductivity.com (email)
SurplusProductivity@SProductivity (Twitter)
http://www.linkedin.com/pub/paul-winghart/12/779/390 (LinkenIn)
The material contained herein is not a product of any research department . Nothing herein constitutes a recommendation of any security or regarding any issuer;
nor is it intended to provide information sufficient to make an investment decision. The information contained in this communication has been compiled by
surplusproductivity from sources believed to be reliable, but no representation or warranty, express or implied, is made by surplusproductivity, its affiliates or any
other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this communication constitute surplusproductivity judgment
as of the date of this communication, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this
communication constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients
and may have been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services
contained in this communication may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about
the suitability of such investments or services. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original
capital may occur. Every state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment
products which may be offered to their residents, as well as the process for doing so. As a result, any specific securities discussed in this communication may not
be eligible for sale in some jurisdictions. This communication is not, and under no circumstances should be construed as, a solicitation to act as securities broker
or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction to
the fullest extent permitted by law neither surplusproductivity nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or
consequential loss arising from any use of this communication or the information contained herein. No matter contained in this document may be reproduced or
copied by any means without the prior consent of surplusproductivity may buy from or sell to customers on a principal basis in the securities or related derivatives
that are the subject of this communication. Additional information is available upon request. As of this time, this material is free of charge, so long as you link
back to this site and source any information you may use

52. Thank you for watching!
Paul Allen Winghart
www.surplusproducivity.com
pwinghart@surplusproductivity.com (email)
SurplusProductivity@SProductivity (Twitter)
http://www.linkedin.com/pub/paul-winghart/12/779/390 (LinkenIn)
The material contained herein is not a product of any research department . Nothing herein constitutes a recommendation of any security or regarding any issuer;
nor is it intended to provide information sufficient to make an investment decision. The information contained in this communication has been compiled by
surplusproductivity from sources believed to be reliable, but no representation or warranty, express or implied, is made by surplusproductivity, its affiliates or any
other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this communication constitute surplusproductivity judgment
as of the date of this communication, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this
communication constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients
and may have been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services
contained in this communication may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about
the suitability of such investments or services. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original
capital may occur. Every state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment
products which may be offered to their residents, as well as the process for doing so. As a result, any specific securities discussed in this communication may not
be eligible for sale in some jurisdictions. This communication is not, and under no circumstances should be construed as, a solicitation to act as securities broker
or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction to
the fullest extent permitted by law neither surplusproductivity nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or
consequential loss arising from any use of this communication or the information contained herein. No matter contained in this document may be reproduced or
copied by any means without the prior consent of surplusproductivity may buy from or sell to customers on a principal basis in the securities or related derivatives
that are the subject of this communication. Additional information is available upon request. As of this time, this material is free of charge, so long as you link
back to this site and source any information you may use