. 10 indeed, the u. s. manufacturing sector is healthy. the recovery from the pandemic downturn has been remarkable, especially in comparison to the great recession. the sector is currently producing at 3 percent above its pre - pandemic level. and, importantly, october marked 18 consecutive months of increasing manufacturing see erik brynjolfsson, daniel rock, and chad syverson ( 2021 ), “ the productivity j - curve : how intangibles complement general purpose technologies, ” american economic journal : macroeconomics, vol. 13 ( january ), pp. 333 – 72. see paul a. david ( 1990 ), “ the dynamo and the computer : an historical perspective on the modern productivity paradox, ” american economic review, vol. 80 ( may ), pp. 355 – 61. the relationship between competition and innovation is complicated and a matter of some debate. see philippe aghion, nick bloom, richard blundell, rachel griffith, and peter howitt ( 2005 ), “ competition and innovation : an inverted - u relationship, ” quarterly journal of economics, vol. 120 ( may ), pp. 701 – 28. in addition, see the discussion of the literature in rachel griffith and john van reenen ( 2021 ), “ product market competition, creative destruction and innovation, ” cepr discussion paper no. dp16763 ( washington : center for economic and policy research, november ). see ryan decker, john haltiwanger, ron jarmin, and javier miranda ( 2014 ), “ the role of entrepreneurship in u. s. job creation and economic dynamism, ” journal of economic perspectives, vol. 28 ( summer ), pp. 3 – 24. - 9employment. if manufacturing were to return to its role as a productivity leader, productivity for the total economy would grow noticeably faster. looking ahead, productivity plays an important role in our thinking about the outlook. productivity growth raises the nation ’ s per capita income and, one hopes, the welfare of the typical household. as i mentioned earlier, productivity growth may also help lower prices. if we can make more with less, firms can lower the cost of the final product and still remain profitable. for this reason, it is heartening to see all the innovation happening in the motor vehicle industry and throughout the economy. it is hard to know exactly when all the benefits will show up, but we know the historical evidence suggests they

a substantial number of multifamily units currently under construction will be delivered next year, helping to ease the housing shortage. still, these positive developments are likely to feed into measured consumer prices only gradually. services prices more broadly have accelerated sharply this year and may prove to be a persistent factor keeping inflation elevated. demand for services continues to recover from its pandemic lows, with the release of pent - up demand for travel evident to anyone who has spent much time in dtw and other airports recently. labor compensation is a key factor for non - housing services prices, and growth in labor costs remains well above pre - pandemic rates. there has been some moderation recently, with slowing in average hourly earnings and in the employment cost index. but wage growth remains above what would be consistent with 2 percent inflation, given prevailing trends in productivity growth. productivity in michigan and the other parts of the country that boast manufacturing hubs, we all understand the importance of productivity. productivity growth is a key factor in the - 3health of the overall economy and in the daily lives of all americans. because ultimately, it drives rising standards of living for all of us. growth in labor productivity, or output per hour worked, has been lackluster in the u. s. economy and around the world in recent years. 1 some observers fret that we are running out of innovative ideas to squeeze more outputs from the same inputs. 2 others look around and see amazing technology used in cutting - edge factories, warehouses, and stores and wonder if the innovation is happening but not spreading as fast as it once did. whatever the cause, in recent years output per hour has only increased at half the rate it did as recently as the mid - 2000s. this is cause for concern. over the first three quarters of 2022, productivity in the business sector has recorded a disappointing decline of 3¾ percent at an annual rate. payroll employment in the private sector has continued to increase, yet gross domestic product ( gdp ) has done little more than move sideways, resulting in an outright decline in labor productivity. however, the recent decline in productivity is partly an artifact of the pandemic. in 2020 and 2021, productivity soared when firms found ways to keep producing while many employees were away from the workplace ( figure 1 ). meanwhile, the economy shifted away from services — a lower - productivity sector — and toward goods — a higherproductivity sector — as households substituted new televisions for