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The unexpected strength of the US economy can be attributed to a boost in productivity.
Economy Technology

The unexpected strength of the US economy can be attributed to a boost in productivity.

Last year, Batesville Tool & Die faced the challenge of meeting customer demand and started searching for 70 new employees. This task proved to be difficult, as it was not easy to attract factory workers to the small community of 7,300 in rural Indiana. This was especially challenging due to the presence of well-known manufacturers such as Honda and Cummins Engine in the area.

There was a shortage of people looking for work.

According to Jody Fledderman, the CEO, the number of unemployed individuals in the town was so low that you could count them on one hand. He described it as a crazy situation.

Batesville Tool & Die was only able to fill 40 of its open positions.

The robots were introduced by the company. They invested in advanced technology that could imitate the actions of human workers and also utilized vision systems to assist the robots in their tasks.

The Batesville phenomenon has been reproduced countless times throughout the United States in recent years. Due to a shortage of workers, many companies have turned to investing in machinery. In addition, they have also provided training for their current workers to utilize advanced technology in order to increase production efficiency.

The outcome has been an unforeseen increase in productivity, which clarifies a significant economic puzzle: How has the biggest global economy managed to remain strong, with a rapid rate of growth and minimal unemployment, despite facing steep interest rates aimed at controlling inflation, which usually lead to a downturn?

Economists view strong productivity growth as a valuable asset. By implementing advanced technology, companies can improve their employees’ efficiency and increase their output per hour. This can lead to higher profits and wages without causing inflation to rise.

The Federal Reserve’s series of rapid increases in interest rates, totaling 11 since March 2022, successfully decreased inflation from a record high of 9.1% to 3.1%. However, contrary to predictions of an economic downturn, the increased borrowing expenses have had minimal impact on the economy.

A Halter robot collects a finished piece for blood pressure pumps from a Mazak Integrex at Reata Engineering and Machine Works, Feb. 15, 2024, in Englewood, Colo.

On February 15, 2024, in Englewood, Colorado, a Mazak Integrex at Reata Engineering and Machine Works is operated by a Halter robot to retrieve a completed component for blood pressure pumps.

One possible reason for this is that companies such as Batesville Tool & Die have found ways to be more efficient. In the past, it was generally believed that wages could increase by no more than 3.5% per year in order to keep inflation within the Fed’s desired range of 2%. This would suggest that the current average annual wage growth of around 4% would need to decrease. However, with increased productivity, there is now more room for wages to continue rising without causing inflation.

The surge in productivity represents a change from the years before the pandemic, where the average annual growth rate was only 1.5%. However, everything shifted as the economy rebounded strongly from the 2020 recession and businesses faced challenges in rehiring workers they had previously let go.

The shortage of workers resulted in a surge in wages. Inflation also rose, as factories and ports struggled to keep up with the increasing demand from consumers.

Numerous businesses resorted to automation in a state of desperation. The benefits of increased efficiency were evident by around a year ago. Labor productivity saw a growth rate of 3.6% per year from April to June, 4.9% from July to September, and 3.2% from October to December.

A Halter robot collects a finished piece for blood pressure pumps from a Mazak Integrex at Reata Engineering and Machine Works, Feb. 15, 2024, in Englewood, Colo.

On February 15, 2024, in Englewood, Colorado, a Mazak Integrex machine at Reata Engineering and Machine Works was used to produce completed blood pressure pumps, which were then retrieved by a Halter robot.

According to Grady Cope, CEO of Reata Engineering & Machine Works, efficiency was a necessity for the company. Due to the strong job market, the Englewood, Colorado-based company struggled to find enough employees. At the same time, their clients were hesitant to pay increased prices.

Reata implemented robots and other advanced technology, including software that automates the process of providing price quotes to customers. This used to take two weeks, but can now be completed in just 24 hours.

Several economists and business leaders express optimism that the productivity surge will persist. They observe that while artificial intelligence is just starting to be integrated into manufacturing facilities, storage spaces, retail locations, and workplaces, it has the potential to expedite efficiency improvements.

The idea of automation instills worry that machines will take over jobs from human workers, resulting in job loss. In cases where robots replace workers, those workers may have difficulty finding new employment and may have to accept lower wages.

According to past events, advancements in technology ultimately lead to the creation of more jobs rather than the elimination of them. Skilled individuals are necessary to construct, enhance, fix, and manage complex machinery. Some individuals who have lost their jobs are trained to transition into these types of positions. Additionally, the current shortage of labor is expected to be alleviated by the retirement of the large baby boomer generation.

Some of today’s productivity gains may be coming not just from advanced technology but also from more satisfied workers. The tight labor markets of the past three years allowed Americans to change jobs and find others that pay better and make them happier and more productive.

Justin Thompson, a resident of Kalamazoo, Michigan, was experiencing burnout from his job as a police officer due to his long 16-hour workdays. “I was exhausting myself,” he stated.

Thompson’s spouse came across a job opening for an operations manager at a charter airline. Despite not having any prior experience in the airline industry, she believed that Thompson could utilize the skills he acquired as a Marine Corps infantryman, specifically in managing logistics for missions during his deployments in Iraq and Afghanistan.

She was correct. Omni Air International employed him in 2019.

At the age of 43, Thompson is thoroughly enjoying his new job that grants him the flexibility to work remotely when he’s not on the road. His time as a Marine, during which he honed his skills in streamlining processes, has proven to be extremely beneficial.

Some employees have transitioned from basic jobs to positions that enable them to increase their productivity.

Employees at Reata Engineering underwent training to familiarize themselves with advanced machinery.

“The main objective is not to terminate employees,” stated Cope, the Chief Executive Officer of Reata Engineering. “The goal is to provide employees with more engaging job opportunities” — along with improved compensation.