Keeping it in perspective

Someone needs to tell you the truth about the economy. I need to put the economy in perspective by telling you that all the doom and gloom in the media is not the whole story.

There are cries of alarm as manufacturing jobs are eliminated and service jobs are sent overseas. This makes for great headlines, but it doesn’t give you the whole picture.

Rising productivity is the root cause of much of the ruckus, generating higher profits, lower inflation and a strong housing market, and increasing stock prices. But productivity generates wealth before jobs.

Earlier this year, consumer net worth hit a new peak of $45 trillion — up 75 percent since 1995. Corporate profits as a share of national income are at an all-time high, and so is the net worth of many individuals. So what’s all the negativity about the economy?

According to Business Week, offshoring isn’t really a problem. Unlike in most previous business cycles, productivity has continued to grow at a fast pace right through the downturn and into the recovery.

One percentage point of productivity growth can eliminate up to 1.3 million jobs a year. With productivity growing at an annual rate of 3 percent to 3.5 percent rather than the expected 2 percent to 2.5 percent, the reason for the jobs shortfall becomes clear: Companies are using information technology to cut costs — and that means less labor is needed.

Of the 3 million jobs lost over the past three years, only 300,000 have been because of outsourcing to another country, according to Forrester Research.

As for those 3 million jobs, that number comes from a Department of Labor survey of mainly larger companies. This figure can be somewhat misleading because the department measures job loss in several ways. One survey of workers showed a job gain of more than 750,000 between January 2001 and January 2004. So it is reasonable to conclude that there may be 3 million jobs lost, but most are coming from large corporations.

Smaller and mid-sized firms are adding these employees back to the work force and driving the economy forward. It is the smaller enterprise that is the job-growth engine that hires the people Fortune 1000 firms cast off.

Don’t believe the hype. The economy isn’t as bad as it’s made out to be. If your business isn’t performing, then start looking for productivity gains before you fall hopelessly behind.