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The New Economy: Down but Not Out

The Old Economy is morphing into the New in every sphere. Using the Internet for B2B activities, as we have seen, Old Economy companies are streamlining and dramatically enhancing productivity. In today's world, information from global positioning satellites is used to navigate trucks on the road and robotic arms swing auto parts into place on the assembly line. New breakthroughs in digital technology and the life sciences are finding their way to traditional resource industries. Seismic soundings have dramatically increased the success of wildcat oil drilling.4

The Fed understands how important it is that advances in technology and productivity gains continue unabated. The same message was voiced in the Clinton Administration's last Economic Report of the President. It showed that productivity gains had spread far beyond the IT sector into all areas of the economy. The gains in productivity growth since 1995—the true hallmark of the New Economy—are structural, not just the short-term result of an upturn in the business cycle. The President's Council of Economic Advisors estimated that "a structural acceleration of productivity of greater than 1 percentage point has taken place."5 A combination of investment in information technologies, improving education and skills of the workforce, and enhancements in the way capital and labor are used throughout the economy are central to the augmented performance.

Better business practices across sectors have been evident. The report shows that, for example, improvements in distribution and supply chain management led to an acceleration in productivity in wholesale and retail trade. Gains emanating from heavy IT investments buoyed performance in the financial and business services sector. Productivity gains were also evident in sectors as diverse as trucking and health care.

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