WSJ Article - U.S. Productivity Gains Driven By Changes in Machine Tools 9/28/2000

[Paul Mielke]

U.S. Productivity Gains Driven By Changes in Machine Tools
By STEVE LIESMAN
Staff Reporter of THE WALL STREET JOURNAL
Many analysts may have overlooked one of the main drivers of the 
productivity gains of the past five years: machine tools.
The report, which was conducted by Joel Popkin & Co. of Washington and will 
be released Thursday, suggests that consumers have saved billions of 
dollars over the past five years because of technological, material and 
process advances in the machines that help make everything from cars to air 
conditioners to airplanes.
Among the conclusions of the study -- conducted for the trade group, the 
Association for Manufacturing Technology -- advances in machine tools have 
helped drive down the costs and enhance the quality and energy efficiency 
of durable goods like refrigerators and automobiles. Flat durable-goods 
prices between 1996 and 1999 have saved consumers over $101 billion, the 
study said, while increased productivity in durable-goods manufacturing has 
added $618 billion to gross domestic product between 1992 and 1998.
"Manufacturing has been reinvented," the study said. "This is the result of 
a combination of factors but fundamentally has been a product of 
improvements in manufacturing technologies."
Greater precision in machine tools, the study argues, has helped cut the 
energy use of air conditioners by 10% between 1990 and 1997. The major 
advance was the introduction in the late 1980s of a new kind of compressor 
whose manufacture required machine tools with a precision down to 10 
microns, or 10-millionths of a meter.
In part, the productivity gains from machine tools have come from 
technological breakthroughs. This has been propelled by the move to open 
architecture, in which a common language is used to program the machines. 
Because of the programming, machine tools now perform a variety of milling, 
grinding or cutting operations at one time, reducing the need to stop the 
machine to change tools, shortening the production cycle and slashing 
inventories. "It takes less time to produce something and consumers benefit 
form those products now sooner rather than later," Mr. Popkin said in an 
interview.
Other improvements have come from new materials, such as ceramics, that 
allow the machine tools to operate at faster speeds, or from new processes, 
like using lasers to cut materials.
While some of the gains are picked up in government statistics, some remain 
unmeasured. For example, the consumer price index, which measures 
inflation, might register a price increase for automobile repair. But it 
would be unable to measure the reduction in money paid to the service 
stations overall by consumers, because their cars are more reliable and 
they are making fewer trips to the service stations. In other words, one 
trip to the service station may cost more, but drivers are making fewer 
trips. Indeed, one of the principal reasons for more reliable transmissions 
is that machine tools now finish metals with far greater precision.
Such potentially unmeasured gains suggest to Don Carlson, president of the 
association, that the Federal Reserve could have been mistaken in its 
recent efforts to raise interest rates. If productivity is higher than 
measured, then the economy can grow faster than thought without fear of 
inflation, he said. "There needs to be a recognition that manufacturing and 
machine tools are driving productivity, and we need to have public policy 
that recognizes that," he said in an interview.
Two academic studies of recent productivity gains have found that more than 
half of the increase has occurred outside the computers, software and 
telecommunications sectors. A co-author of one of those studies, Harvard 
University Professor Dale Jorgenson, said in an interview that Mr. Popkin's 
work is consistent with his own and other academic studies.
Although he hasn't seen the Popkin report, Prof. Jorgenson said that a 
sizable amount of productivity gains has yet to be explained in the economy 
and that the manufacturing sector, of which machine tools are a critical 
part, has probably been a substantial contributor.
Write to Steve Liesman at steve.liesman at wsj.com 
<mailto:steve.liesman at wsj.com>