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The Bureau of Labor Statistics has released some interesting data on the manufacturing sector today--specifically on multifactor productivity during the great recession and the ongoing recovery. Multifactor productivity--"the change in output per unit of combined inputs"--rose 0.8% (annual rate) in 2011. That rate of increase was a big dropoff from 2010, when multifactor productivity rose an unprecedented 4.5%. From the release: Multifactor productivity in manufacturing grew 1.3 percent annually from 1987 to 2011 with sectoral output increasing at an annual rate of 1.7 percent, faster than the 0.3 percent annual increase in combined inputs. During the same period, output per hour (labor productivity) increased 3.3 percent annually. (See table A.) Of the 3.3 percent growth rate in labor productivity, multifactor productivity added 1.3 percent, capital intensity contributed 0.6 percent, materials intensity added 0.9 percent, and purchased business services intensity added a 0.4 percent increase. The contribution of energy intensity was unchanged. For the 2007-2011 period, multifactor productivity rose at a 0.6 percent annual rate compared to a larger 2.0 percent annual growth rate in the 2000-2007 period. Sectoral output declined 2.3 percent and combined inputs declined 2.9 percent over the 2007-2011 period. In 2011, fewer NAICS three-digit manufacturing industries exhibited an increase in multifactor productivity growth and sectoral output growth compared to the previous year. The number of industries exhibiting an increase in combined inputs remained steady at 13, the same number as in 2010. Eleven out of 18 manufacturing industries exhibited an increase in multifactor productivity. Thirteen industries showed increasing output. Seven industries experienced a decline in multifactor productivity growth. Of these seven industries, two were durable manufacturing industries: primary metals and miscellaneous manufacturing. The remaining five industries were in the nondurable manufacturing sector: food, beverage, and tobacco products; textile mills and textile product mills; apparel, leather, and allied products; petroleum and coal products; and plastics and rubber products. Read the full release here .

IMF Director Christine Lagarde visited the Brookings Institution yesterday and spoke about the outlook for the global economy. She was, as she tends to be, deliberate and clear, and while she was anything but glowing in her assessment of the state of the global economy, she was not in any way pessimistic. Here is a brief excerpt in which she discusses the "slow and deliberate" recovery of the EU: Watch the full conversation here .

At the Washington Post Wonkblog , Neil Irwin writes that the Fed is doing a remarkable job of propping up the U.S. economy, largely through its quantitative easing policy. But, he wonders, is that a good thing? And for whom? There is good reason to think that monetary easing is doing quite a bit of the work offsetting tighter fiscal policy. The Fed’s policies, including buying $85 billion in bonds each month with newly created money, are directly aimed at housing; $40 billion of those purchases are of mortgage-backed securities, meaning the money is being funneled directly toward the sector. And sure enough, a solidifying housing market is an important part of the economy’s holding up. And a second important consequence of Fed easing is to boost the prices of other financial assets, including the stock market. This isn’t rocket science: The Fed in September introduced a policy meant to boost housing and stock prices, and now, nine months later, housing prices and stock prices have risen quite a bit. Enough, indeed, to (so far) offset the impact of higher taxes that went into effect Jan. 1 and federal spending cuts that took effect March 1. So far so good. The bad news, though, is that these channels through which monetary policy affects the economy tend to offer the most direct benefits to those who already have high incomes and high levels of wealth. Data from the Fed’s Survey of Consumer Finances shows that nearly half of families in the upper 10 percent of income own some stocks, and that of those who did the average value of the portfolio was $489,000 in 2010. (It was over $650,000 in 2007, and now that stock prices are back to 2007 levels, it’s a reasonable guess that the 2013 number will turn out to be in that ballpark). Irwin goes on to discuss the impact of rising home prices, and argues that the benefits in one part of the economy aren't offsetting problems elsewhere. Read the full post here .

Real Gross Domestic Product expanded at an annual rate of 2.5% in the first quarter of 2013, according to an advance estimate just released by the Commerce Department . This was a significant improvement over the 0.4% increase over the last quarter of 2012, but is below what many economists expected, according to Reuters . The Bureau of Economic Analysis report points to inventory investment as the main driver of the increase in GDP: The pick up in real GDP growth was largely accounted for by a rebound in inventory investment, mainly reflecting an upturn in manufacturing and a smaller decrease in wholesale trade. Farm inventory investment also picked up. In addition, consumer spending accelerated, primarily reflecting a pick up in spending for services (mainly household utilities), and exports rebounded, mainly due to upturns in foods, feeds, and beverages and in nonautomotive capital goods. In contrast, imports turned up, reflecting in part an upturn in nonpetroleum industrial supplies and materials. Also, business investment slowed, reflecting a slowdown in equipment and software (mainly in information processing) and a downturn in structures. Here is a look at the trend: Read the BEA release here .

The latest Planet Money podcast features an interview with Thomas Herndon . Herndon attracted a lot of attention last week . He's the University of Massachusetts graduate student who discovered an error in Carmen Reinhart and Kenneth Rogoff 's influential paper on government debt. The error prompted the Planet Money team to ask, "How much should we trust economics?" Take a listen:

Carmen Reinhart and Kenneth Rogoff 's paper, Growth in a Time of Debt , has been required reading for policy makers in developed economies, and it is seen as highly influential in the debate over austerity. After the authors' methods were called into question, Rogoff and Reinhart looked over their work, and found an error. But they still stand by their conclusions (FT, sign-in required). Thomas Herndon , Michael Ash , and Robert Pollin are the economists who highlighted some key issues with Reinhart and Rogoff's work. In Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff , the authors write that they "find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics." Here is a sample of their critique: To build the case for a stylized fact, RR stresses the relevance of the relationship to a range of times and places and the robustness of the rounding to modest adjustments of the econometric methods and categorizations. The RR methods are non-parametric and appealingly straightforward. RR organizes country-years in four groups by public debt/GDP ratios, 0{30 percent, 30{60 percent, 60{90 percent, and greater than 90 percent. They then compare average real GDP growth rates across the debt/GDP groupings. The straightforward non-parametric method highlights a nonlinear relationship, with effects appearing at levels of public debt around 90 percent of GDP. We present RR's key results on mean real GDP growth from Figure 2 of RR 2010a (below) and Appendix Table 1 of RR 2010b in Table 1 (here). Figure 2 in RR 2010a and the first line of Appendix Table 1 in RR 2010b in fact do not match perfectly, but they do deliver a consistent message about growth in time of debt: real GDP growth is relatively stable around 3 to 4 percent until the ratio of public debt to GDP reaches 90 percent. At that point and beyond, average GDP growth drops sharply to zero or slightly negative. A necessary condition for a stylized fact is accuracy. We replicate RR and that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and growth among these 20 advanced economies in the post-war period. Our most basic finding is that when properly calculated, the average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not 0:1 percent as RR claims. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when public debt/GDP ratios are lower. Download the paper here .

Yesterday we looked to the always measured and methodical Tim Duy to explain why he sees a lasting recovery for the U.S. economy . Today we move from an economist to a market analyst: Timothy Holland of TAMRO Capital Partners . Holland is evaluating economic conditions from the investor's point of view. In this interview with the Wall Street Journal 's Paul Vigna , Holland points to improvements in the housing market, monetary policy around the globe, lowered consumer debt, and "slow but steady job creation" as reasons to be optimistic:

San Francisco Fed President John C. Williams visited the Forecasters Club in New York last Thursday and gave his assessment of the economy. He named four key factors behind the slow, or "tepid" recovery: 1) the effects of the housing bubble and crash; 2) austerity measures reducing aggregate demand; 3) eroding demand for exports with a weakened global economy; and 4) unusually high levels of uncertainty. He then addressed the question of whether these factors affect supply and demand: So, is the problem today inadequate supply, or demand, or both? A useful way to think about this question is to compare the unemployment rate with the natural rate of unemployment. By the natural rate, I mean the unemployment rate that minimizes labor market imbalances and pressures—either upward or downward—on inflation. The unemployment gap—the difference between the unemployment rate and its natural rate—measures the degree to which labor demand is unequal to supply. Movements in the natural rate itself reflect changes in supply. Of course, we can’t directly measure the natural rate of unemployment. Rather, we must estimate it. This topic has appropriately garnered a great deal of attention among economists at the Federal Reserve and elsewhere in recent years. Extensive analysis of the labor market comes to a clear conclusion: Supply-side considerations explain only some of the rise in unemployment. Most of that rise is explained by a lack of labor demand. Let’s look at this more closely. Prior to the recession, a typical estimate of the natural rate of unemployment was between 4¾ and 5% (see Williams 2013). The empirical evidence suggests that the recession and policy responses to it, such as extended unemployment insurance benefits, contributed to dislocations in the labor market. These have pushed the natural rate above its pre-recession level by about 1 percentage point (see Congressional Budget Office 2013 and Daly et al. 2012b). Consistent with these findings, my estimate of the current natural rate of unemployment is about 6%, roughly 2 percentage points below the current unemployment rate. This 6% figure is consistent with many other estimates, including the most recent median estimate of the Survey of Professional Forecasters (Federal Reserve Bank of Philadelphia 2012). Fortunately, many of the influences that have elevated the natural rate of unemployment since the crisis and recession should fade over time. In fact, this process is already under way. The extended unemployment insurance programs have been scaled back and are affecting fewer and fewer people. Eventually these programs will be phased out. In addition, measures of mismatch between workers and available jobs are receding (Lazear and Spletzer 2012 and Șahin et al. 2012). And, at least so far, we are not seeing permanent scarring effects of long-term unemployment (Valletta 2013). I expect that, in coming years, the natural rate will return to a more historically typical level of about 5½%. I should note that the fact that economists are busily studying, debating, and revising their assessments of the supply side of the economy is encouraging. It makes a repetition of the mistakes of the late 1960s and 1970s much less likely. In our research, Orphanides and I found that, if economists and policymakers had similarly reevaluated their views back in the 1960s and 1970s, the stagflation of that period could have been avoided (Orphanides and Williams 2013). The conclusion that the economy is suffering primarily from weak demand rather than a shortage of supply receives additional support when the factors weighing on recovery are analyzed. The finding of the research that I mentioned on the economic effects of uncertainty—that heightened uncertainty raises unemployment and depresses inflation—is evidence that uncertainty primarily acts as a barrier to demand, not supply. Other research supports that view. In recent work published by the San Francisco Fed, Mian and Sufi (2013) compare state-level employment performance during the recession and recovery with state-level survey data from the National Federation of Independent Business. The NFIB survey asks small business owners to identify the single most important problem they face. Answers include taxes, poor sales, labor costs, government regulation, insurance costs, et cetera. Mian and Sufi find that declines in state employment were highly correlated with the percentage of respondents in each state citing lack of demand as their most important business problem. Read the full speech here .