Thursday, September 10, 2009

Productivity growth and the never-to-return jobs

I have talked about the economy in a couple of previous posts. This was here talking about green shoots, and about the signs of frailness in the recovery. Over the months of April through August, the life of this blog, news about the economy did seem mixed. The first clear signs that things were beginning to stabilize came around the May timeframe when the drumbeat of negative economic news first started to turn mixed. The jobless claims did not rise as quickly as anticipated, the economy continued to lose jobs but fell off from the rate of close to 0.5 million a month. Around the same time period, existing home sales started to pick up for the first time in more than 2 years and finally in August, the sales pickup translated to rise in prices, for the first time in nearly 2 and a half years.

Meanwhile, Asia continued to power ahead, creating hope and optimism that it would serve as the engine for the stabilization and subsequent growth of the US economy. But even as sectors such as auto, manufacturing and - in some geographies - retail sales have started to show modest increases, job growth still eludes the economy. Quoting the WSJ blog Real Time Economics, a rough sketch of the numbers looks something like this. Average hours worked is declining at an annual rate of nearly 3%, based on quarterly numbers from earlier this year. This is largely driven by the job cuts, but also by anaemic hiring on part of companies. On the other hand, economic indicators point to the GDP growth returning to its cruising rate of about 2-3% a year. The combination of reduced work hours and economic growth translates to a positive growth for this interesting metric called Labor Productivity. One can therefore expect a productivity jump of nearly 4-6% in the third quarter. And given that incomes are flat, this is going to be good news for corporate profits. Dow at 11,000 by the end of year, anyone?

It has been said earlier that this looks like the famous jobless recovery that everyone fears. My take on what is going on. The slumping economy has given corporations the leeway to embrace job automation and computer-driven efficiency measures in a pretty radical manner. The people getting eased out are the ones who have enjoyed a successful run at holding down 'Old Economy' jobs in a world which doesn't value these jobs any longer. When the housing bubble was on, the inefficiency of these jobs never surfaced. But as corporate bottomlines are exposed, companies are making do with fewer and more talented people. Employees who are adept at computers and the use of technology and in its power to ruthlessly driven efficiencies.

For every one of us, this is a sign of how ephemeral our much 'valued' skills are in today's economic reality. A call to action that will be heard by the smart amongst us, but which will also be sadly ignored by many.

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