NCPA - National Center for Policy Analysis

Productivity Surges As New Economy Rebounds

May 8, 2002

The new economy, in which technology enables companies to make things faster and cheaper, is on track, and even speeding up as the economy pulls out of the recession, according to Labor Department figures.

  • The Labor Department reports that productivity rose at an 8.6 percent annualized rate for the first quarter of 2002 -- its fastest pace in 19 years.
  • This means businesses produced more goods and services and used fewer man-hours of labor to produce it.
  • One reason for the productivity gains, according to the government's report on the first quarter's gross domestic product (GDP), technology spending rose at a 7.5 percent annual rate, while spending on industrial equipment rose at a 15.6 percent rate.

Although economists expect the productivity gains to begin slowing to its trend of about 2.5 percent per year, this would be much better than the 1970s and 1980s, when productivity averaged about 1.4 percent. But it would be less than the 1960s, when productivity rose almost 3 percent a year as companies made use of World War II inventions.

Last month, Alan Greenspan, chairman of the Federal Reserve Board, said there is still a lot of technology yet to be exploited. "This suggests that, all other things being equal, that the growth rate is likely to be quite measurably stronger than it was for example over the quarter century prior to 1995."

Source: Ron Scherer, "Productivity surges; 'new economy' lives," Christian Science Monitor, May 8, 2002.

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