Bernanke bullish on productivity gains

Thursday, August 31st 2006, 12:08 pm

By: News On 6

WASHINGTON (AP) _ America's productivity probably will keep growing solidly for some time to come, an important force in bolstering living standards, Federal Reserve Chairman Ben Bernanke said Thursday.

Although future productivity gains can be difficult for economists to forecast, Bernanke offered a largely optimistic case that the country will continue to log good efficiency gains over the long term. He said recent figures showing a short-term slowing in productivity didn't change his view.

``A case can be made that the strong productivity growth of the post-1995 era is likely to continue for some time,'' he said in remarks prepared for an economic and development conference in Greenville, S.C. A copy of his remarks was made available in Washington.

Since 1995 productivity has been growing at a significantly faster rate than it had in the previous two decades, when efficiency gains had been sluggish.

Between 1995 and 2005, productivity growth was about 2 1/2 percent a year, Bernanke noted. In contrast, from the early 1970s until about 1995, productivity growth averaged about 1 1/2 percent a year, he said.

Big investments in computers and other productivity-enhancing equipment has played a role in the productivity improvements. Competition, the flexibility of U.S. companies to easily add and shed workers and other factors have contributed to the improvements.

And U.S. workers _ from auto mechanics and factory workers to scientists and engineers _ have done their part by learning how to use new technologies that sharpen their productivity.

``Few jobs or occupations have not been affected in some way by the technological changes of recent years, a trend that will certainly continue,'' Bernanke said.

To make sure that good productivity gains are logged in the future, it is crucial that ``we have a work force that is comfortable with and adaptable to new technologies,'' he said. That's why workers need to be mindful of freshening their skills and education, Bernanke added.

Productivity _ the amount an employee producers for every hour on the job _ is a key ingredient to the economy's long-term vitality. Efficiency gains can be a blunting force against inflation. Companies can pay workers more without boosting prices, which would eat into those wage gains.

In the April-to-June quarter, though, productivity growth slowed sharply. And, companies' compensation to workers shot up.

Productivity grew at an annual rate of just 1.1 percent in the second quarter, down from a 4.3 percent pace in the first quarter.

As a result, unit labor costs, a measure of how much companies pay workers for every unit of output they produce, advanced at a rate of 4.2 percent in the second quarter _ much faster than the 2.5 percent pace logged in the first quarter. Economists keep close tabs on unit labor costs for clues about inflation.

In his speech, Bernanke did not discuss the future course of interest rates.

With the economy slowing, the Federal Reserve on Aug. 8 halted a more than two-year long string of rate increases. The pause gives policymakers time to assess the toll their previous rates hikes have taken on economic activity.

Economists have mixed opinions about what the Fed will do next. Some believe the Fed will leave rates alone again at its next meeting, Sept. 20. Others, however, predict a rate increase is in store to fend off inflation.