Productivity Boom (1990s)
The late-1990s productivity boom let the US run unusually low unemployment (around 4%) with quiet inflation (core near 2%), because faster productivity growth raises what the economy can supply, easing price pressure even when demand is strong.
| Unemployment | ~4% (1999–2000) |
|---|---|
| Core inflation | ~2% |
| Productivity | ~2.8%/yr (late 1990s) |
Not all surprises are bad. The late-1990s "New Economy" shows the happy case, a positive supply-side shock.
An IT-driven acceleration pushed labor productivity to roughly 2.8% a year, well above the post-1973 norm. Faster productivity means the economy can produce more for the same cost, which lowers price pressure for any given level of demand. So the US enjoyed something the simple Phillips curve says is hard: unemployment around 4% (a 30-year low) alongside core inflation near 2%.
It is the mirror image of the 1970s. Where a cost shock raises inflation and unemployment together, a productivity boom lets output and employment rise while inflation stays calm, effectively raising the economy's non-inflationary speed limit. Greenspan's Fed famously bet that productivity had risen and held back from tightening.
Sources: Economic Report of the President (2000); SF Fed. See the methodology.