- The Washington Times - Thursday, November 6, 2003

Federal Reserve Chairman Alan Greenspan yesterday said the odds favor a revival of job growth after this summer’s surge in economic growth, but much depends on whether the extraordinary productivity boom persists.

The Labor Department yesterday reported a stunning 8.1 percent rise in productivity during the summer quarter, revealing the reason that the economy was able to grow at a 7.2 percent rate and still shed jobs.

Productivity is the amount of goods and services produced for each hour worked. Because of unusually strong productivity growth, American businesses have been able to produce, on average, 5 percent more each year since the recession ended in November 2001, even as they laid off nearly a million workers.

Mr. Greenspan called the productivity gains “startling” and “astonishing,” and sought for the first time to sort out the reasons behind them in a speech to the Securities Industry Association.

One reason is employers, worried that the summer jump in sales would not last, pushed their existing work force harder. Employees complied, because many of them are worried about losing their jobs, he said.

Reports released by auto dealers, chain stores and other retailers since the summer show a substantial slowdown in sales from the boom induced by tax rebates during July and August — apparently bearing out businesses’ caution about hiring. A measure of sales at 80 chain stores published yesterday by the Bank of Tokyo-Mitsubishi showed sales in October were slightly higher than a year ago.

But despite the slowdown in sales and increasing feelings of job insecurity among workers, Mr. Greenspan said he expects hiring to resume. Businesses were forced to draw down their inventories to very low levels because of the summer spending binge, he said, and they will have to ratchet up production and increase their staff, if only to restock empty shelves.

“The odds … increasingly favor a revival in job creation,” he said.

Businesses in the past might have achieved growth simply by coercing more work from their employees and stretching existing resources, but that trend is likely to fade as companies face the reality that the only way they can keep meeting increased demand is by increasing production and adding staff, he said.

Treasury Secretary John W. Snow also said the extraordinary productivity gains seen during the summer were “unsustainable” and should give way soon to job growth. In a speech to the National Economic Club on Wednesday night, he attributed the gains to corporate America’s “relentless drive to take out costs” and added that the issue is critical because “you don’t have a recovery without jobs.”

Bolstering their optimism that job growth is poised to make a comeback, the Labor Department reported yesterday that new claims for jobless benefits plunged by 43,000 to 348,000 last week — the lowest level since January 2001.

The dramatic decline in unemployment claims has led economists to predict that a broader report on October employment due out today will show a second monthly gain in jobs.

But Mr. Greenspan, who in his speech also criticized Congress for allowing the budget deficit to burgeon out of control in a way that he said threatens economic growth in the future, was cautious in his prediction of job growth in light of the unexpectedly vigorous productivity gains.

The Fed chairman said some of the productivity gains likely are coming not just from a temporary burst of hard work, but also from more permanent, structural changes being adopted by businesses that pose a more lasting threat to workers and their jobs.

Since the recession, companies have been forced to search for cost-saving measures just to stay in business and produce a profit, he noted. Because labor remains the highest cost for most businesses, many apparently have found ways to cut staff from bloated levels they maintained during the 1990s economic boom without any adverse impact on their operations.

Many of the labor-saving changes imposed by businesses have been made possible by the widespread adoption of technologies such as computers, the Internet and cell phones. To the extent businesses are able to substitute technology for labor, or find other efficiencies that enable them to permanently reduce staff, the productivity enhancements could continue for some time and put a damper on job growth, Mr. Greenspan said.

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