Technology People and Productivity - Domestic Output And The Role Of Technology

Productivity grows as the quality of tooling grows — machinery, equipment, and software. The nation's Gross Domestic Product (GDP) measures the ultimate output of the economy. The role of "tooling" is shown in the graph above. The top line shows GDP. The other series are selected components. These include three major series — personal expenditures on services, on nondurable goods (food, toiletries, clothing, etc.), and on durable goods (autos, appliances) — and two measures of industrial investment: investment spending on equipment and software (bold line) and investments on nonresidential structures (bottom curve).

In the 1987 to 2000 period, measured here in inflation-adjusted dollars, the largest growth has been experienced by equipment and software (8.8% compounded annual growth, versus GDP's growth of 3.2%). At the beginning of the period, this category was 5.9% of GDP. At the end of the period, it was 11.8%.

The recession of July 1990 to March 1991 caused "Equipment and software" to dip 2.1%; GDP dipped 0.5. Surprisingly, personal consumption expenditures on services did not drop as a consequence of the recession as measured here, year-end to year-end.

While these series do not prove a causal relationship between "machinery" (including software) and "productivity," in the recent periods, strong growth in expenditures on these categories has contributed to steady GDP growth. The use of computers in business, improved communications through cell phones, and the efficiencies introduced in business by the Internet have at least subjectively contributed to productivity.

A look at net stocks of private fixed assets (non-depreciated equipment/software in use by the private sector), shows that much of the growth during the recent period is attributable to growth in computers, software, and communications equipment. Growth rates are cumulative annual rates based on inflation-adjusted 1996 dollars.

Category	1990-2000 annual growth rate (%)
Nonresidential equipment and software	4.82
Information equipment and software	9.41
Computers and peripheral equipment	27.86
Software	13.14
Communication equipment	6.95
Instruments	5.28
Photocopy and related equipment	0.94
Office and accounting equipment	0.37
Industrial equipment	2.33
Transportation equipment	4.77
Other	2.81

Source: U.S. Department of Commerce, Bureau of Economic Analysis, and Survey of Current Business, September 2001, published by the same agency.