Productivity Gain Tied To Gizmos High-Tech Equipment Enables Nation To Enjoy Low Inflation, Strong Growth

All those computers, car phones and other efficiency-enhancing gizmos are finally paying off. U.S. productivity grew robustly in 1997 for the second consecutive year.

The 1.7 percent advance in output per hour of work at nonfarm businesses, on top of a 1.9 percent increase in 1996, explains why Americans were able to have their economic cake and eat it too, enjoying fast growth with declining inflation.

The economy’s growth in 1997, 3.9 percent, was the strongest in nine years; the unemployment rate, 4.9 percent, the lowest in 24 years, and inflation, 1.7 percent, the best in 11 years.

In its report, the Clinton administration cited the healthy productivity of the past year as evidence there’s little danger of slipping into recession even though the current expansion - just a month short of seven years long - is the third-longest in the nation’s history.

“The economy is behaving as if it remains in a midexpansion phase, rather than an end-of-expansion phase,” the report said.

In the fourth quarter, productivity grew at a 2 percent annual rate. That’s much better than predicted by economists but slower than the 3.6 percent rate in the third quarter, the best in nearly five years.

Productivity is the key measure of how quickly living standards can rise. If the same number of workers at a company can produce more without working longer hours, that means the company can pay them more without raising its prices or trimming its profits.

Even small changes, over time, are significant.

“It’s the difference between an economy where people feel they’re going nowhere to an economy where people feel like they’re making progress,” said economist Mark Zandi of Regional Financial Associates in West Chester, Pa.

Though the 1996 and 1997 gains were considerably better than the lackluster 1-percent-a-year average from 1974 through 1995, they fell far short of the average advance of 2.9 percent a year from 1960 through 1973.

Economists debate whether the recent improvement signals a long-term trend. Those who think it does say it’s the payoff for businesses’ heavy investment in new technology every thing from computerized inventory tracking systems to automated teller machines.

Such investment isn’t new but has recently accelerated to a new level, along with the pace of technological advancement. Growth in investment spending hit a 13-year high of 12.2 percent last year.

“And there’s a learning curve. It takes time for people to use the new technology effectively,” Zandi said.

“You don’t just pop a PC on a desk and tell people to go at it.”

Manufacturing, in particular, has benefited from technological advances. Its productivity increased 4.4 percent last year, the best in 11 years, and 3.7 percent in 1996.

“Computer-based technologies have speeded up production, lowered defect rates … and enabled engineers to design new products,” said Jerry Jasinowski, president of the National Association of Manufacturers.

Sluggish productivity from the mid-1970s to the mid-1990s has been blamed for a host of economic problems, from shrinking inflationadjusted incomes to a widening gap between rich and poor.