More Punch in Productivity?

Aid now for some good news about U.S. industry's competitive strength. In the third quarter of this year, according to a poll of 548 large companies by the Wall Street Journal, average aftertax profits were up by 21%, compared with the same period last year. Airlines and the steel industry posted big increases; General Motors' net income rose by 31% to $528 million, its highest quarterly earnings ever.

Corporate belt tightening, price increases and the continued buoyancy of the economy all helped to increase profits. Kemble Stokes, a Commerce Department senior economist, adds another, more intriguing reason. During the third quarter, the U.S. managed a jump in nonfarm productivity of 3.7% at an annual rate, compared with a first-quarter decline. The increase was startling because productivity has slipped badly in the U.S. since the mid-1960s, partly as a result of the flow of less skilled people into the labor force and the proliferation of costly government regulations. For the past five years America's rate-of-productivity growth has been below 1%, vs. Japan's 5.5% and West Germany's 6.6%.

The surge may prove to be only statistical. Productivity figures, Stokes concedes, "bounce around a lot." But even if the figures swing down again, U.S. industry could brandish a new study by the Organization for Economic Cooperation and Development on the relative competitiveness of 24 major industrial countries. It found that, largely as a consequence of the dollar's drop and rising world prices, the U.S. now enjoys the lowest production costs and highest profit margins of all the 24. Steeply rising U.S. export and import prices relative to all other OECD countries, including Japan and West Germany, provided U.S. manufacturers with ever widening profitability margins. The OECD analysts concluded: "Indeed, by almost every available indicator the United States seems to have become much more competitive internationally during the last five years."

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