Washington, DC, September 1, 2006--The strong increase in productivity, or output per hour of work, seen over the past decade is likely to continue for some time, Fed chief Ben Bernanke said Thursday.
"A case can be made that the strong productivity growth of the post-1995 era is likely to continue for some time," Bernanke said.
Here are further prepared remarks:
"Strong productivity gains allow the economy to grow fast without inflationary pressures building.
"Productivity, a vital economic concept that remains elusive to gauge accurately, is important because it is the only source of improvement in U.S. living standards over the long-run." Bernanke did not explain how productivity influences Americans' living standards.
"After sluggish gains in the 1970s and '80s, productivity accelerated to average about 2.5% per year beginning in the mid-1990s. Productivity has averaged 3.1% during this recovery," he said.
The revised productivity figures for the second quarter will be released next Wednesday.
"Recent government revisions to the national income and product accounts have shown productivity growth over the past few years to be slightly weaker than previously thought, but Bernanke said he was cautiously optimistic that the longer-term rate of productivity growth could remain at roughly 2.5% per year.
"The conventional wisdom says that the rise in the use of computers by manufacturers and business in general lies behind the impressive gains in output.
But in his speech to the Leadership South Carolina in Greenville, Bernanke suggested the conventional wisdom may not tell the entire story.
Bernanke said the answer to the productivity puzzle may be the investment in "intangible" capital that accompanied the widespread use of computers into the workplace.
This would help explain why productivity continued to soar after spending on high-tech equipment plunged after the dot.com bubble burst in 2000.
To make effective use of technology, "managers must supplement their purchases of new equipment with investments in firm- or industry-specific research and development, worker training, and organizational redesign," he said.
Bernanke did not address the economic outlook or factors that might impact the Federal Reserve at its next meeting to set monetary policy on Sept. 20.
Many economists believe the Fed will hold rates steady for the second straight meeting to get a better sense of where the economy is headed over the next 18 months.
Bernanke is in South Carolina to be honored Friday by his hometown of Dillon, located on the I-95 corridor near the border with Georgia. He will receive the Order of the Palmetto, the state's highest honor.
