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Greenspan sticks to script
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July 11, 2000: 11:35 a.m. ET
Fed chief returns to productivity message as markets cheer the familiar
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NEW YORK (CNNfn) - Federal Reserve Chairman Alan Greenspan Tuesday touted technology's ability to increase productivity, crediting innovation with propelling the nation's economy into a record ninth year of expansion.
U.S. stocks, down before the remarks, rose as the Fed chief's comments hit the wires, in apparent relief that the world's most powerful banker said nothing about borrowing costs. Instead, he returned to a subject he has dwelt on for years.
Still, Greenspan's remarks were not without some surprises. The Fed chief said the U.S. economy has outpaced Europe's and Japan's in part because information technology makes it simpler and less costly to fire workers in the United States.
 But most of the speech echoed the familiar.
"The recent period has been marked by a transformation to an economy that is more productive as competitive forces become increasingly intense and new technologies raise the efficiency of our businesses," Greenspan said in a speech to the National Governors Association in State College, Pa. "With the rapid adoption of information technology, the share of output that is conceptual rather than physical continues to grow."
Greenspan has touted technology's effect on improving productivity before.
"His comments regarding productivity looked like copyright infringements from his old speeches," said Tony Crescenzi, bond strategist at Miller Tabak & Co.
With the Internet and other fast-paced technology speeding a variety of functions, companies can produce more in less time, allowing them to save money and avoid passing costs onto consumers. This, economists say, is one of the reasons behind the economy's ability to expand for a record ninth year without generating appreciable inflation.
Mum on rates
As always, the market was looking for some hint into whether the Fed, after raising rates six times since June 1999, is done tightening credit. He offered no solid clues But Wall Street appeared to take no news as good news.
"We believe that there is almost no policy significance in today's speech," said Bruce Steinberg, Merrill Lynch's chief economist
Despite his touting of technology, Greenspan clouded his outlook on the permanence of these forces..
"Until we experience an economic slowdown, we will not know for sure how much of the extraordinary rise in output per hour in the past five years is attributable to the irreversible way value is created and how much reflects endeavors on the part of the business community to stretch existing capital and labor resources in ways that are not sustainable over the long run," Greenspan told the nation's governors.
Comparing the nation's economy to those of Europe and Japan, Greenspan called the U.S. ahead of its counterparts in its ability to exploit the benefits of technology on improving productivity.
He essentially said the ease of firing workers -- even as unemployment remains near a 30-year low -- has allowed American companies a nimbleness not shared by those overseas.
"The rates of return on investment in the same new technologies are correspondingly less in Europe and Japan because businesses there face higher costs of displacing workers than we do," Greenspan said. "Moreover, because our costs of dismissing workers are lower, the potential costs of hiring and the risks associated with expanding employment are less."
He continued: "The result of this significantly higher capacity for job dismissal has been, counter-intuitively, a dramatic decline in the U.S. unemployment rate in recent years."
A busy calendar
The central bank kept rates steady at its policy-making meeting late last month. But only a handful of analysts rule out the possibility of another credit tightening at the next meeting in August.
Recent figures have shown the economy is cooling under the weight of steeper borrowing costs. But several key pieces of data, including July's jobs figures, come out before the Fed's August meeting, giving officials plenty of fresh numbers to parse.
The Fed chief has a busy speaking calendar ahead. He addresses a New York audience Wednesday. And next week, Greenspan speaks before the Senate Banking Committee. The markets will watch that session closely as senators, some critical of the Fed's credit tightening ways, have the chance to question its chief directly. 
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