Efficiency Data Revised Downward
American business efficiency rose at a far slower rate in the early 1990s than previously thought, according to government figures released Thursday.
Major revisions in the Labor Department’s closely watched measure of nonfarm business productivity show efficiency rising at an average annual rate of 1.1% from 1990 through ’94. That pace is far less impressive than the 1.8% rate the department had previously estimated for the period.
The government also sliced its estimate of nonfarm productivity gains for 1995’s third quarter to 1.4% from the previous 2% estimate. That quarter is the latest period for which data are available.
The downward revisions were widely expected after the government announced it was changing the way it computes productivity. The new method has provoked a controversy among economists.
Many contend the new figures vastly underestimate the performance of U.S. firms and the extent to which massive restructurings and new technology have helped improve efficiency in recent years.
“The new numbers are severely flawed and are giving a completely distorted view of American efficiency,” said Stephen Roach, chief economist at Morgan Stanley & Co. in New York.
According to the new method, critics point out, the 1.1% annual increases in productivity for 1990 and ’91 virtually match the 1% gains estimated for 1979 and ‘80, a time when productivity growth was viewed as sluggish.
Roach has been a particularly vocal critic of a recent switch by government statistical agencies to a method of calculating inflation-adjusted output called “chain weighting.” The method is intended to capture price changes of goods and services more accurately, and it has been applied to the Commerce Department’s measure of gross domestic product as well as to the productivity gauge.
Government officials defend their new way of doing things.
“There is just no question that the basic change in methodology that we’re now implementing is a better method of computing productivity growth than the constant dollar rates that we were using up until now,” said Edwin Dean, associate commissioner for productivity and technology at the Bureau of Labor Statistics.
Productivity is defined as output per number of hours worked and is a primary measure of the nation’s living standards and business competitiveness. Increases mean companies are making their goods more efficiently and at lower costs.
The report also suggests that inflation remained muted in the third quarter of ’95. Unit labor costs, typically two-thirds the cost of a product, rose at a 2.4% annual rate, little changed from 2.3% for the previous quarter.
In a separate report, the Labor Department said the number of new claims for jobless benefits dropped by 21,000 last week to a seasonally adjusted 368,000, after having declined by 23,000 a week earlier.
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Productivity
Nonfarm business productivity, percentage change from previous quarter, annualized rate and seasonally adjusted:
3rd quarter, 1995: 1.4%
Source: Labor Department
