Productivity slow-down causing some concern

U.S. and European productivity growth was relatively slow in 2006, according to an annual analysis of global trends by The Conference Board, New York, raising concerns about the long-term effects of information and communication technology (ICT) as a continued impetus for productivity growth. The U.S.'s 2006 numbers were the lowest in more than a decade and, despite a strong business cycle, the enlarged European Union saw modest gains of only 1.5%.

"Over the past decade, information and communication technology has been a key driver of global productivity growth but, with these latest numbers, one begins to wonder whether ICT's contribution has peaked," says Bart van Ark, director of International Economic Research. "The significant fall in U.S. productivity growth is unlikely to be purely cyclical, and the modest European revival of productivity also points to the limited impact of technological change and patchy liberalization of product and labor markets in many countries."

However, according to the report, the "lull" also could be due to a transition phase to a second wave of ICT-driven expansion still to come. "Today's business models have reached a certain level of technology saturation, and incentives for creating a second wave of applications are weak, but there are many industries--in particular in services--in which the potential for more productive technology use seems large. Future ... gains may be waiting for a new generation of business applications," points out Gail Fosler, executive vice president and chief economist.

U.S. labor productivity slowed for the third consecutive year in 2006 and was well below that of the other two largest advanced economies in the world, Germany and Japan. The latest estimates suggest that most of the U.S. slowdown comes from service sectors.

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