US companies are ramping up investments in technology and other capital expenditures as they emerge from the pandemic. If sustained, that investment boom could boost productivity and living standards and curb inflationary pressures.
Private business investment in non-residential businesses grew by 7.4% year-on-year in 2021, after adjusting for inflation, the fastest pace since 2012 and a strong recovery from the 5.3% decline in 2020.
Spending on software and information processing equipment such as computers increased by 14% in 2021 compared to the previous year. Since the first quarter of 2020, when Covid-19 began to spread rapidly in the US, those categories have grown vastly more than others, such as buildings, which are less in need as more and more remote work is done.
Corporate spending is likely to remain strong this year. Manufacturing companies surveyed by the Institute for Supply Management plan to increase capital expenditures nominally by 7.7% by 2022. Service companies expect an increase of 10.3%.
The new investment has helped increase productivity by making employees more efficient. Productivity, which measures workers’ output per hour worked, grew at an average of 2.2% per year in 2020 and 2021, from an average of 0.9% between 2011 and 2019, before the pandemic.
A more productive economy can produce more goods and services with the same number of hours worked. Over time, that could raise workers’ wages without driving up inflation.
Robert Rosener, senior economist at Morgan Stanley†
said the rise in capital spending “is an area that stands out as an important bright spot for longer-term economic growth.”
In particular, spending on new technology can occur in non-tech sectors, such as retail, spreading productivity gains more widely, he said. About three-quarters of retail executives surveyed by Morgan Stanley last year said they plan to increase information technology spending, up from 21% in 2019.
One of the driving forces behind the technology drive is a labor shortage that makes it difficult for executives to recruit and retain employees. In December 2021, the US workforce was about 1.4% smaller than it was in February 2020, before the pandemic was widespread in the US. Economic production, on the other hand, was 4.5% higher in the fourth quarter of last year than in the first quarter of 2020, after adjusting for inflation.
Brian Niccol, chief executive at burrito chain Chipotle Mexican Grill Inc.,
told investors in an earnings call in February that the company is having trouble recruiting and is considering automating some more tedious tasks.
“How do we get rid of the jobs that people honestly don’t like doing?” he said. “If there was a way to cut and clock the avocados so that our team member just has to mash and add the salt, add the lime and add the onions, it would make their job so much better.” .”
The nation’s largest employer announced last year that it would bring robots to 25 of its 42 regional distribution centers at a time when retailers across the country were having trouble manning warehouses. The company said separately last year that it was seeking 20,000 permanent employees for its supply chain operations and has increased wages and bonuses.
Another driver is the move to remote work for legions of white-collar workers whose offices were closed at the height of the pandemic. Companies have invested in online tools and software to allow their employees to work from home.
causing e-signature software to see a “dramatic acceleration in purchases” early in the pandemic, CEO Daniel Springer said, in a March 10 earnings call. The company’s revenue grew 45% in its last fiscal year, he said.
“Now that the pandemic is subsiding and people are starting to return to the office, they are not going back to paper,” he said. “E-signature is here to stay.”
Research by Jose Maria Barrero of the Instituto Tecnologico Autonomo de Mexico, Nicholas Bloom of Stanford University and Steven Davis of the University of Chicago has found that many workers will continue to work from home once the pandemic is over. About 20% of workdays will be at home after the pandemic, versus 5% before the pandemic, they estimate.
That will boost productivity by about 1% using the Department of Labor’s measure, they estimate. Home workers are more productive, they found, in part because they have no distractions in the office.
Still, it’s hard to predict how the increase in capital spending and remote working will affect productivity in the long run. Even in normal times, productivity is difficult to accurately capture. Pandemic-related disruptions, such as mass layoffs and rapid hiring in a relatively short period of time, may have further clouded the statistics.
“My best guess is it’s probably a small positive,” said Mr. Bloom.
Robert Gordon, a Northwestern University economist, sees reasons to be both optimistic and pessimistic about future productivity growth. On the one hand, the increase in corporate spending suggests “more automation and productivity-boosting replacement of workers with machines,” he said in an email.
On the other hand, Mr Gordon’s research suggests that much of the recent productivity gains have come from sectors such as finance or professional services, where a significant number of employees have worked remotely.
“To the extent that this shift from office to work from home is temporary, so is the resurgence in productivity growth,” he said.
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