Gains Still Evident in Worker Productivity

Staff -- graphic arts online, 1/1/2001

One of the most encouraging aspects of this record-long period of U.S. economic expansion is the degree to which worker productivity has improved from the depressed levels of the 1980s and early 1990s.

The Labor Department recently reported that productivity in the nation's manufacturing sector rose at a 7.3% annual rate during Q3 2000-up from the 5.7% growth rate recorded in Q2 and above the 6.2% and 6.3% gains in 1998 and 1999, respectively.

U.S. manufacturing output rose at an annual rate of 4.1% during the July-through-September period in 2000, but the number of employee hours required for this level of production actually declined by 2.9%. For all of 1999, production expanded by 4.5%, yet the number of hours put in by manufacturing sector employees was 1.7% less than during 1998.

It is now generally accepted that because of the large volume of "new-economy" technological investments made by American companies during the past 10 years, GDP can rise at a 3.5% to 4.0% annual rate without triggering significant wage and product price inflation. Consequently, the Fed has been inclined to tolerate the nation's period of strong growth, and has raised interest rates much less than it would have 10 to 20 years ago.

Official figures suggest that productivity gains in service industries haven't been as strong as in the manufacturing sector. But it's clear that technological investments have helped to keep inflation low, and have been instrumental in enabling an unprecedented period of economic prosperity.