Productivity Is Up—And It Counts

 Last month, the Bureau of Labor Statistics reported that productivity figures for the last quarter of 1999 had been revised sharply upward, adding more than two percentage points to the 4.3 points reported earlier. As one news source put it, “The efficiency of American workers surged at a 6.4 percent rate in the final three months of 1999.”

Unfortunately, this news was overshadowed by reports on rising fuel costs, big swings in the price of blue chip stocks on Wall Street, and predictions of higher interest rates. But a strong showing in productivity growth is worth dwelling on—and being happy about.

Productivity for all of 1999 is now determined to have risen 3 percent while inflation for the year stands at 1.9 percent when volatile energy and fuel prices are not counted in. Growth in manufacturing productivity was especially strong in the fourth quarter of 1999. It rose at a 10.3-percent seasonally adjusted annual rate, as output increased 6.6 percent and hours of manufacturing workers dropped 3.3 percent, according to the government report. In 1999, hourly compensation of manufacturing workers increased 5.0 percent, yet unit labor costs in the manufacturing sector fell 1.4 percent.

That means many companies are able to pay employees more without raising the prices of their goods, yet still deliver increased profits to shareholders and investors. Likewise, many employees have more to spend because pay is rising faster than inflation.

These statistics prove the point that manufacturing productivity is clearly related to prosperity and a rising standard of living. Manufacturing represents about 20 percent of the gross national product, and unlike other economic activities, the wealth created by manufacturing is tangible, pervading almost every aspect of modern life.

In our industry, we’ve been seeing the investment in computerized machine tools over the years yield substantial increases in metal removal rates and parts per hour. Now, advances in communication technology based on Internet technology promise to streamline many other shop activities. So further gains in productivity are due.

The stock market may go up and down, creating huge losses or gains, sometimes with shares of companies that haven’t made a dime of profit. In the meantime, more rational and more sustainable contributions to economic growth will come from manufacturing. This fact of life may not be heralded in newspaper headlines or on the nightly news, but it is no less true.