Tuesday, February 8, 2011
Stock Market: The Magic of Efficiency
Why`s that? The answer: Companies are becoming more and more efficient - and progress is running fast and strong.
Last week the Federal reserve reported that the productivity of U.S. worker increased in the fourth quarter at a 2.6 percent annual rate. For all of 2010, the employee output per hour climbed 3.6 percent, the most since 2002.
This is great news for the economy and the stock market. Companies can produce more and more with their existing work force, therefore their labor expenses shrink fast. Falling costs translate into rising profits, the motor of the stock market rally. Rising profits translate also into economic growth, the animation that motivate companies to produce and invest more.
We have observed the rise in the productivity for more than 100 years. The amazing productivity gains we have enjoyed explain the economic miracle of the last 2 centuries. People work now much less than 100 years before and their wealth has exploded in the process.
We owe the strong gains in productivity to the amazing ability of people to learn. They get every day better in the things they do. One of the fruits of the learning process is technological progress, which almost every day gives us new devices and techniques which make life better.
It seems that we now experience a new industrial revolution with strong productivity gains, thanks to computers, chips, the internet and other software applications. Thus there are good prospects for economic growth and the stock market.