Lately, the headlines have been full of negative news about inflation, the global chip shortage and supply chain issues that have adversely affected consumers and businesses all over the world.
However, there is one development that is getting too little attention, perhaps because it undermines the mainstream media’s unremittingly negative narrative.
The U.S. is on the cusp of a productivity boom.
Both companies and customers have embraced new technologies that make it easier for Americans to produce more with fewer workers.
This is not just a blip. It is the edge of a coming boom that will have wide-ranging benefits for years to come.
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“Productivity” is a nebulous word, so let’s define our terms.
From an economic standpoint, productivity refers to how much output a worker can achieve in an hour.
When workers have better tools – more powerful computers, faster internet connections, better networks, robotics, sensors, artificial intelligence – they can build things, service things and process data faster.
Higher productivity leads to more goods and services available, as well as higher wages.
What has driven this new trend?
Ironically, the pandemic.
The economic lockdown, store closings, social distancing and the work-from-home trend forced businesses everywhere to compress the digital upgrades they would have made over the next decade into just a few quarters.
It was technology adoption on steroids.
Our own publishing company is a good example. Most of our investment analysts have worked remotely for years.
Yet we never imagined that the dozens of employees who came to the office each day at 105 W. Monument Street could do their jobs just as well without face-to-face meetings or in-person collaboration.
When the pandemic hit and everyone was required to work from home, everything that needed to be done got done. And often in less time than before.
Productivity went through the roof.
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Our experience was typical. And the trend isn’t just nationwide. It’s worldwide.
More people are working, shopping, banking – and even seeing their doctors – online than ever before.
The new digital economy is an unalloyed good for just about everyone.
It has also put power back into the hands of workers. Many have told their employers to count them out if they’re required to return to the office.
These men and women like working from home. They’re good at it. And they don’t want to change.
Businesses in need of workers recognize that. And – with a severe labor shortage – are happy to offer them what they want.
Increasing productivity creates greater worker demand, higher wages and benefits, and more opportunities.
Consumers get wider choices and – ultimately – lower prices.
So why are prices rising now?
Part of it is due to government ineptitude. It’s hard to justify short-term rates at zero and multitrillion-dollar deficit spending when the economy is rebounding, we’re near full employment and inflation is running at a 6.2% annual rate.
But there is also the global chip shortage. This can’t be undone overnight.
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But major manufacturers are pouring approximately $146 billion into new manufacturing capacity this year.
According to Gartner, a tech-market researcher, that’s not only 50% more than pre-pandemic 2019. It’s more than double what the industry spent five years ago.
Another reason is The Great Snarl. There are supply chain issues all over the globe.
Most of the world’s manufacturing centers are in developing markets. These were slow to receive safe and effective vaccines.
That’s changing. But it takes time to get factories online, schedule shipping, store inventory and get transportation back to full speed.
This process will take another six to nine months.
But here’s the good news. The market is constantly discounting the future.
How far out do investors look? Approximately six to nine months. (The view beyond that is simply too hazy.)
So if you’re looking for a reason to be bullish in the midst of a negative news cycle, consider the productivity boom.
It will ultimately lead to stronger economic growth, bigger corporate profits and – not least of all – higher share prices.
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