Productivity

Capital Stock Increasing

Economists use the term "capital stock" as another way of describing a country's tools of production -- such as computers, machinery and vehicles, combined with the skills and education of its population. The more capital stock a country has, the more productive it becomes -- and the wealthier its citizens become, also.

Last month, the Bureau of Economic Analysis re-evaluated the capital stock numbers for the U.S. -- based on new methods of figuring depreciation -- and came up with some good numbers, indeed.

  • The new numbers show that the capital stock of building and equipment was $22.6 trillion in 1996 -- about 20 percent higher than previous estimates.

  • The new data also show that the net value of nonresidential equipment owned by businesses soared by 4.7 percent in 1995 -- the largest gain since 1979.

  • The amount of equipment per private sector worker rose by 2.5 percent last year -- on top of a 1.6 percent gain in 1995.

  • By contrast, from 1984 to 1994 equipment per worker only increased 0.8 percent per year.

This surge helps explain why productivity in the nonfinancial business sector is rising at a 2.4 percent rate -- double that of the previous decade. Moreover, the pattern of investment shown in the new numbers suggests that productivity gains are still being undermeasured.

So far this year, capital spending by business is running at a pace almost 10 percent over a year earlier. By anyone's standards, that is the road to even greater prosperity.

Source: Michael J. Mandel, "Congratulations! Your Capital Stock is Up," Business Week, June 9, 1997.

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