Greenspan offers caution on productivity
By Caren Bohan
WASHINGTON, June 14 (Reuters) - Federal Reserve Chairman
Alan Greenspan offered a cautionary note on Monday about the
U.S. economy's capacity to expand quickly without inflation,
saying fast productivity growth may not last forever.
"The rate of growth of productivity cannot increase
indefinitely," Greenspan told a congressional panel in prepared
testimony. "While there appears to be considerable expectation
in the business community, and possibly Wall Street, that the
productivity acceleration has not yet peaked, experience
advises caution."
In his testimony on the role of high-technology industry in
the U.S. economy, the world's most powerful central banker did
not directly discuss the outlook for monetary policy. Financial
markets expect the Fed to raise interest rates at its next
policy meeting on June 29-30.
Bond prices, which had been trading higher early on Monday,
showed little reaction to Greenspan's remarks.
Investors will look for further clues about interest rates,
when Greenspan returns to Capitol Hill on June 17 to testify on
the subject of monetary policy and the economic outlook.
But Greenspan did describe the performance of the U.S.
economy as "remarkable", giving credit to advances in new
technology.
Speaking before the Joint Economic Committee of Congress,
he said those advances had encouraged business competition and
helped to hold down prices. This had occurred because
investment in technology had boosted factory capacity.
"The resulting slack in product markets has put greater
competitive pressure on businesses to hold down prices.
Technology is also damping upward price pressures through its
effect on international trade," he said.
Over the past three years, productivity outside the farm
sector has grown at an annual rate of around 2 percent a year
-- double the roughly 1 percent growth rate averaged during
much of the 1970s and '80s.
Greenspan said technology had improved the economy in
numerous ways. He cited bar code scanners at store checkout
counters as one of the innovations that has helped businesses
meet consumer demand more effectively by cutting down on the
lead time for deliveries of goods from books to capital
equipment.
In many cases, firms have been able to use technology as a
substitute for labor, cutting down on costs, the Fed chairman
said.
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