Why do Investors Care?
Productivity growth is critical because it allows for higher wages and faster economic growth without inflationary consequences. In periods of robust economic growth, productivity ensures that inflation will remain well behaved despite tight labor markets. Productivity growth is also a key factor in helping to increase the overall wealth of an economy since real wage gains can be made when workers are more productive per hour.

In the late 1990s, some Wall Street experts asserted that dramatic productivity advances were allowing the economy to sustain a much faster pace of growth than previously thought possible. Initially, Fed chairman Greenspan had expressed skepticism about those assertions, but then decided that they indeed helped boost economic growth. After all the economic revisions were in for the 1990s and early 2000, the data revealed that productivity growth had indeed improved in the 1990s, but not as much as preliminary estimates had indicated. In any case, the productivity data give investors important clues on how stocks and bonds can be expected to perform, and the market reactions to these releases show the true importance of productivity growth.