The central-bank literature has been packed with productivity references for a while now.

Why?

Because G. Love sees productivity as the one, true cure for all that may ail us.

A genuine increase in productivity growth is great. It holds costs in check, which is good for producers, and that keeps price pressure down, which is good for consumers. There are no losers here; everyone wins.

Games like that are rare. That's why central bankers are focused so keenly on these numbers. If what we've been seeing is indeed a genuine increase in productivity growth, and if it's still beating and thumping right now, then we have little to fear in terms of economic imbalances and threatening price pressure. If it isn't, and if it's not, then we're in trouble.

Thus far, the productivity debate is working for the Feds. A 7.0% year-on-year increase in output less a 1.8% year-on-year increase in hours worked produced a 5.1% (roughly -- blame rounding) increase in productivity during the April-May-June quarter. That's up from a 3.9% increase during the first quarter. And that's up from a 2.9% increase last year. And that's up from a 2.6% increase in 1998.

So this measure of productivity is most definitely still showing acceleration, and that is precisely the kind of thing policymakers want to see.

Unit labor costs? Even better. They rose 2.4% in 1998. Then they rose 1.8% last year. Then they rose at a 0.7% rate during the first quarter. Then they fell at a 0.4% rate during the second. A clear-cut deceleration in costs like this is also precisely the kind of thing policymakers want to see.

Back in May 1999 G. Love opined about the need for improving productivity. Faltering productivity gains, he said, could lead to emerging inflationary pressures.

In testimony before Congress this year G. Love underscored the productivity theme:

In one sense, the more important question for the longer-term economic outlook is the extent of any productivity slowdown that might accompany a more subdued pace of production and consumer spending, should it persist. The behavior of productivity under such circumstances will be a revealing test of just how much of the rapid growth of productivity in recent years has represented structural change as distinct from cyclical aberrations and, hence, how truly different the developments of the past five years have been.

Epilogue

So, is the productivity acceleration we've seen genuine?

As G. Love says, we will not know until economic growth slows materially.

Our leaning?

We're somewhat skeptical. As Steve Roach of Morgan Stanley Dean Witter notes, genuine productivity growth is "all about generating more value-added per unit of work time." Tearing down your corner bookstore and replacing it with its electronic analog? No. That ain't it.

Machines? They're fundamentally better. That fancy new one on your desk can recalculate the biggest spreadsheet you can find four millionths of a second faster than the one that came before it. And? And you're still no more productive than you were yesterday. And your company isn't any more profitable. And two more fancy machines in front of you wouldn't change a thing. There's too much good research out there disputing the theory that more technology spending grows productivity.

We also wonder about time. How many of you work in the car? Or on the train? Or home nights? Or on weekends? How many of you are on your cell phones while Johnny's playing soccer? How many of you carry those sissy Palm-y things so that when you can't be conducting business everywhere you go, at least you're reminding yourself to do it later? It sure seems that people are working a whole lot nowadays. Everywhere. All of the time.

Even at dinner. Is that work getting counted? It's easy enough to tally up product -- you know precisely what you charged -- but are all the hours being included in there? Or does the way we're measuring things make the productivity picture seem brighter than it is?

Then there's this: If the productivity thing is indeed real, it's certainly a much better deal for firms as profit-makers than it is for people as wage-earners. CEOs are constantly grousing that worldwide competition keeps them from getting away with raising prices -- yet lower and lower labor costs sure keep their margins nice and fat. Where's the piece of the productivity miracle that goes into an employee's pocket? That's what those striking phone company workers want to know.

What? All that tech spending and investment bypassed telcos completely? Not even a little miracle money to throw out to the masses?

Even worse? The central bank has let the Consumer Price Index run from 1.4% to 3.7% in just over two years. What's that done? It's tanked real wages, which went from rising at a 3.1% rate to falling outright during three of the first six months of this year.

A true-blue spectacle indeed.

Anyway. Just something to think about.

Side Dish

Almost half an hour.

The embargoed numbers hit the wires at half past eight. The Bureau of Labor Statistics finally had them posted on its site just shy of nine.

And given that productivity is the subject in question here?

That's just too rich.

Side Dish II

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