New Reports Show IT Reflects, Not Leads Economy

A Labor Department report says heavy users of IT aren't getting as big a productivity boost as in the past.
Two government reports this week show how IT is tightly woven into the nation's economic fabric, reflecting the maturation of the technology sector. That means IT-laden businesses aren't as productive as they once were, and the production of IT wares more or less mirrors the output of other types of goods.

On Thursday, the Labor Department reported that third-quarter, nonfarm business productivity rose at a seasonally adjusted, annual rate of 1.9%, the smallest increase in two years. A day earlier, the Commerce Department said factory orders for computer and related products wares increased by 10.9% in September from a year earlier, 0.1% lower than all factory orders.

Except for two quarters in 2002, nonfarm productivity rose for the past 2 1/2 years at a seasonally adjusted annual rate ranging from 3.1% to 6.9%. The government revised its second quarter productivity growth rate to 3.9%.

Economists, including Federal Reserve Board chairman Alan Greenspan, have credited IT with helping businesses increase productivity, defined as the output produced by each worker. Indeed, a major factor behind the so-called "jobless recovery"--in which the economy expanded in the past few years while job growth remained relatively flat--was the widespread adoption of IT. That meant businesses could produce more products and services with fewer workers. But, as IT has become widely embedded into the corporate framework, the efficiency gains created by technology have been nearly exhausted, and companies must increase payrolls to grow further. Costlier payrolls drive down productivity; simply, it costs more to produce each dollar of goods and services with a larger workforce.

The latest Commerce report showed that the value of shipments for computer wares, like computer orders, slightly trailed shipments of all manufactured products. Shipments of computers and related products in September rose 10.3% higher than they were a year earlier; by comparison, shipments of all factory goods increased 11.6%. Inventories of computers and related products grew 7.3% in September over a year earlier. By comparison, the inventory for all factory-produced goods grew 5.9% in the past year. Higher inventory levels cost manufacturers money since products sitting in warehouses don't generate revenue.

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