PRODUCTIVITY REMAINS THE KEY TO ECONOMIC HEALTH
Productivity, defined as output-per-worker-hour, is so important to our economy that I think its worth spending some time on again in this space, since it is really one of the primary driving forces of the current American economic miracle. Remember the original rule we all learned in Econ. 101; if you get a 4% pay increase but you somehow become 5% more productive, then the pay increase is good and non-inflationary. If you get even a 1% pay increase, but you are no more productive than you were the year before, then even that small pay increase is inflationary, and is not good for your company or the country.
With that in mind, Minneapolis Federal Reserve President Gary Stern said recently, confirmed again recently, that productivity growth is the key to the rising living standard in our country and to the limited price pressures. Stern told a group that if productivity continues to rise at a 2% annual pace as it has for the past 3 years, then living standards will double in the next 35 years. However, if productivity were to revert to the 1% growth rate seen in the 70s and 80s, it would take 70 years to achieve the same doubling of our living standard.
Stern acknowledged that, "We don't have an entirely satisfactory answer, " to whether recent productivity gains are due to permanent fundamental factors, or whether they are just reflecting the economic good times. "But," he added, "It appears that firms are finding ways to apply productivity to offset price increases. Indeed, " said Stern, "business people argue that published productivity statistics are, in fact, too low." Stern went on to say that the role of the Fed is to create a stable economic environment where the private sector can thrive.
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Well, if productivity is so darned important, what are some things that hold back productivity? This is probably no surprise to anybody, but the government itself is one of the things that retards productivity. This comes in a report confirmed by no less than the General Accounting Office. A recent report says U.S. businesses spent 12.6 million hours responding to 180 general purpose statistic and research surveys by Federal Agencies in fiscal year 1998, at a cost of up to 305 million dollars.
The congressional watch dog agency also said that these so-called surveys account for only an extremely small percentage of the estimated paperwork burden that federal agencies impose on business. The accounting office said 14 large surveys conducted by the Labor Department's Bureau of Labor Statistics and the Commerce Department's Census Bureau, account for nearly two thirds of the government-wide surveys conducted.
The GAO went on to say that the survey topics range from changes in the selling prices of goods and services, to the characteristics of businesses owned by minorities and women. It noted that the surveys provide economic information that is widely used by federal, state and local governments as well as businesses and the general public.
The bottom line on all of this is that, while surveys may produce some interesting information, there's not a business person alive that doesn't complain about all the paperwork required by the government, whether at the federal, state or local level. And all that paperwork takes up hours and hours of time, and therefore is a drag on productivity.
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In the meantime, with the help of increased productivity and despite the drag that the government always puts on the economy, things remain pretty good. The American Bankers Association confirms this with a recent study that delinquent credit card accounts posted their sharpest quarterly decline since the second quarter of 1997. The percentage of accounts overdue by 30 days or more fell to just 3.33% from 3.58% in the first quarter.
That may seem like nothing but the quarter-point drop is the biggest quarterly decline since the fourth quarter of 1997. Kenneth Leggett senior economist for the Bankers Association said "the favorable economy coupled with strong job growth has helped consumers make timely payments. Savvy consumers reduce their debt burden by refinancing their mortgages and are using additional money to pay off their bills."
Now, I know all this is fairly technical, but the bottom line is that the American consumers are apparently using economic good times to clean up their own personal balance sheets. That's great news.
(Tom Butenhoff is a First Vice President with J. E. Liss & Company in Milwaukee. The views are his and not necessarily those of Liss Financial Services or the Job Connection/Hiring Network.)