Why the U.S. economy is booming?

5 minutes
Why the U.S. economy is booming?

The economy is booming. Why hasn't job growth really happened?

Payrolls have increased 1.6 million in the past three months and are up 1.7% this year through May, which would be impressive in normal times. These aren't normal times, but be patient. The economy is rapidly reopening, consumers are flush with federal stimulus funds and retail sales, factory orders and housing are all booming. The inflation-adjusted gross domestic product is up 5.3% until May this year, according to a monthly series that IHS Markit calculates.

The gap between GDP and jobs is explained by soaring output per worker. The U.S. is in the midst of a productivity boom which seems to be beneficial for export industry. This is positive for wages and inflation because higher revenue can absorb increased wages without companies raising prices. It isn't such a good news in the jobs outlook if employers don't conclude they can meet sales targets with less hiring.

In recessions employers are typically slow to cut jobs as sales slump, which causes productivity to decline. When sales rebounds, they are slow to add jobs and productivity rebounds. This pattern has broken with the pandemic. The business output per hour grew in three of the last four quarters. In the January to March quarter of this year, it was 4.1% faster than a year earlier.

Some of this reflects the particular patterns of this unusual downturn. The losses suffered by low productivity, average wage sector such as leisure, hospitality and other independent services artificially increased overall productivity.

However, the pandemic may also have encouraged companies to increase their sales models and shift their use of technology to squeeze more sales from the same workforce. The industries responsible for a third of the lost job losses since the start of the pandemic have increased output, including retailing, information, finance, construction and professional and business services, said Jason Thomas, Head of Global Research at private property manager Carlyle Group.

This recession took on a life of its own by leading to greater remote work and greater reliance on technology, Mr. Thomas said. Why do we have so much floor space? Do people think that the cost base makes sense or does this would fall into some form? Why? This experience shows how ignorant you were about the frontiers of technology that you could exploit.

Indeed, the software investment increased from a year earlier 105% adjusted for inflation in the first quarter as businesses poured money into cloud computing, collaboration software and electronic commerce.

One of the beneficiaries is CardFree Inc., which designed and operates online and mobile ordering systems for food-service operators. CardFree's apps have enabled restaurants to better respond to incoming orders and regulate them to better match staffing and capacity, said Chief Executive Jon Squire.

CardFree and Monty's Good Burger first adopted the platform of CardFree to protect the health of customers and staff. Customers could order from their phones instead of waiting 15 to 45 minutes in line at one of the company's four Los Angeles-area restaurants. As the app began to take root, our business did phenomenally well, said Bill Fold, one of its partners. Some 40% of the company's revenue comes from the app, which has made employees spend much less time on customer service and more on food preparation. As a result, workers are raised before the pandemic and sales are level with 15%. Those sales would have gone down without the app.

At Silver Diner Development, which has 20 restaurants throughout the Washington, D.C. region, takeout went from 20% to 80% during the pandemic.

CardFree streamlined the takeout process by allowing customers to pay on their phone by text or scanning a QR code, a type of barcode, said John Huddle, director of information technology. What was a two or three trip process to deliver curbside items is what we do on one trip. That's a big labor savings.

Silver Diner doesn't want to reduce staff. As the restrictions are lifted, takeout has dropped to 40% to 30% of orders and it is struggling to fully staff its restaurants. But technology such as CardFree allows it to use existing staff more effectively, Mr. Huddle said. We'll even do more sales with the same level of people.

Eventually, high-performing servers can take orders on mobile devices, increasing the number of tables they can handle, but the technology has only become practical in the last two years, said Mr. Huddle. By increasing workers' productivity, technology helps the chain to meet the higher wages arising from the local job market and the tight minimums.

At the moment, lack of supply, not lack of demand, is holding back job growth. Job openings in April climbed 1 million to 9.3 million and was the highest since records began in 2000. Hourly wages are briskly increasing. Why are so many jobs unfilled when unemployment is still near 6% suggest that many workers are hanging back either because they are still worried about the virus, can earn as much or more from unemployment insurance or have changed their expectations for work.

Some of those restraints should ease in coming months as all the pandemic withdrawals and enhanced unemployment insurance lapses are expected to follow. There are clearly limits to how far technology is substituted for staff. Despite the hype, robots aren't yet replaced by cooks. They are not even replacing waiters.

However, the longer shortages exist, putting upward pressure on wages, the greater the incentive for companies to turn to technology to economize on labor — and the longer the slowdown of the jobs recovery will take.

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