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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Dealer who wrote (37842)	6/14/2001 11:19:09 AM
From: stockman_scott	Read Replies (1) \| Respond to of 65232

Fed's Ferguson Upbeat on Productivity Thursday June 14, 10:57 am Eastern Time By Jonathan Nicholson <<WASHINGTON (Reuters) - Federal Reserve Vice Chairman Roger Ferguson repeated on Thursday his confidence that the productivity gains seen in the United States in recent years will not necessarily fade even as the economy slows. ``Cyclical forces, such as the inability of businesses to add to their payrolls as rapidly as they would have liked in response to the rise in demand, probably played some role in these productivity gains,'' Ferguson said in a speech to be delivered at the U.S. embassy in The Hague in the Netherlands. A copy of his remarks was released in Washington. ``However, I believe that the answer to the question is that most of the growth in productivity was structural, or trend, and not cyclical,'' he said. The debate over whether the acceleration in productivity -- measured as output per hour of work -- is structural or simply an artifact of the United States' long economic expansion has major implications for policymakers. Rising productivity can increase supply and allow for faster, noninflationary economic growth. But productivity posted its sharpest decline in eight years in the first quarter, an event that Ferguson, at a Capitol Hill appearance on Wednesday, said was ``not surprising,'' given the current slowing in the economy. Still, Ferguson on Thursday said he was ``cautiously optimistic'' that productivity improvements can be sustained, citing continued technological advances in high-tech equipment, as well as firms' continuing to try to use technology to substitute for labor. ``We should be mindful that even during the period between 1995 and 2000, productivity increases on a quarterly basis fluctuated; the trend increase that is so clear now did not progress unabated,'' he said. Ferguson also said higher productivity not only affects the supply side of the economic equation, but that it also can boost demand. Rising productivity causes increased capital investment by businesses, who may sense profit opportunities, and, through the stock market's anticipation of faster economic growth, increased consumer spending. ``Overall, the stock market, working through the spending decisions of both households and businesses, will act to bring forward the demand effects of the improved outlook for supply, potentially even pushing demand up ahead of the increase in supply,'' Ferguson said.>>