A FishermanÕs Point of View

Sometimes the best fishing is just before a storm.
I see reasons for confidence today despite the dark threat of terrorism and the myriad of disturbing events that cloud our forecasts. My current sunny attitude is based on a recent report from the Labor Department that appeared in a press release from Washington last summer.

WASHINGTON (Aug. 7) - "America's business productivity soared in the second quarter of 2003.É Productivity - the amount that an employee produces per hour of work - grew at an annual rate of 5.7 percent in the April to June quarter, the best showing since the third quarter of 2002, the Labor Department reported Thursday...

"For the economy's long-term health and rising living standards, solid productivity gains are crucial. They allow the economy to grow faster without triggering inflation. Companies can pay workers more without raising prices. And, productivity gains also can bolster a company's profitability."

That article got me started on my present course of exuberant economic forecasting, and it may even have been one of the reasons the stock market reversed its downward course one year ago.

How the Department of Labor makes its calculations, is a mystery to me, but its recent announcements serve to suggest a faster pace for manÕs progress than ever enjoyed before.

The accepted rate of climb for productivity improvement since World War II was an average 2% a year. TechnologyÕs contribution was the basis for laborÕs added efficiency at a fairly constant speed for more than fifty years. Quite recently, these gains have surged and now appear to be three times the accepted norm.

I suspect that there is an increasing degree of guesswork that goes into the makeup of these productivity figures. Much of our improvement is now coming from the service sector of the economy and far less from the manufacturing side. Figuring productivity gains in services, like accounting, advertising, marketing, etc. is not as easy as measuring cost improvement in manufacturing. Calculating the gain in productivity per worker on an assembly line is a simple matter; measuring improvements in accounting, advertising or marketing is far more difficult.
While I accept the figures from the Labor Department, I do wonder if the figures are really correct.
Despite the difficulty associated with calculating improved efficiency, the fact is, that productivity is probably improving with every passing day.

What a most promising trend for future prosperity, for workers and consumers alike. The global nature of this development means a higher level of income for a broader and broader segment of the worldÕs labor force.

Yet it has a somber side. When products are made with fewer man-hours of labor, some employees necessarily lose their jobs. As fewer workers are required to produce the goods and services, some are of necessity laid off.

Many analysts* are now decrying the rise of productivity, because they believe it is the principal reason for our growing unemployment. Several groups have come up with an estimate of the number of workers dislodged from their employment. It ranges from 600,000 to 800,000 out of the estimated three million laid off since the slow down began.

The good news is that there has been no sudden surge in unemployment as you might anticipate there would be, as productivity gains have surged. Unemployment should have risen sharply instead of falling as has recently been reported. I take that to be a very encouraging sign.

Why this high rate of improved efficiency has just begun has not been explained by the Labor Department. Nor has the probable duration of its advance been suggested. But it seems obvious that if it lasts a few more years, a far more positive attitude about the future will be generated among economists.
I have my own suspicions for believing these gains will not only continue but have only just started their promising course.

The benefits coming from newly developed applications in the software industry are at the root of our improved state. In offices all over the world, software programs have become far broader in application and at the same time more effective and easier to implement. Professional programmers have improved their earlier innovative achievements delivering a more cost effective array of user-friendly products.

They are also pricing their products at more attractive levels. The pay-as-you-go trend in the software industry has only recently been introduced. ItÕs what is behind IBMÕs recent campaign. The large software providers like SAP, Peoplesoft and Seibel Systems are cooperating with IBM to bring a broader range of products to a far wider list of potential clients at lower cost. Medium sized companies can now afford to pursue the advantages previously shared largely by the largest well-financed enterprises.

As this trend continues, the newer and more effective software programs may help accelerate AmericaÕs slow economic progress. Evidence of it will show up in Labor Department figures with lower costs for a widening range of consumer products and higher profits for those who make them.
A lot of what is happening today may then begin to make sense to you.
For the citizen of modest means, I recommend a Taser stun gun.
Richard E. McConnell November 1, 2003

*When I was at college, fifty years ago, our economics professor mentioned the advent of robots in manufacturing saying it was a good thing, because it lowered the cost of products and made them more affordable to consumers.
I asked the professor if he would have a different view if all assembly workers were displaced by robots resulting in a huge unemployment problem. He smiled and said that when all work was performed through automation, displaced employees could take the year off and go fishing.