240428_How a Chicken Sandwich Shows a Hidden Power in the U.S. Economy(Barrons)

Summary

• '23년 미국의 노동 생산성은 평년 1.6% 대비 3.3%로 두배 이상 증가하였으며, 노동생산성의 증가는 인플레이션 방어에 효과적으로 작용
• 미국의 노동생산성 향상은 빅테크 기업의 400B$에 이르는 대규모 투자에 따라 달성됐다고 판단됨
  • 일례로, Ali’s Chicken & Waffles은 테블릿 통한 주문 방식 도입 후 한정된 인원으로 두배 더 많은 고객에게 서비스 제공이 가능해짐
  • Starburks의 경우, 디지털 전환으로 노동생산성 30% 증가
• 대규모 투자의 배경의 원인으로는 "코로나로 인한 대규모 퇴직 > 노동 공급 감소 > 노동자 우위 시장 형성 > 노동비 상승 > 노동을 자본으로 대체(capital-for-labor substitution)하려는 기업들의 노력 증가" 로 해석될 수 있음.

Script

How a Chicken Sandwich Shows a Hidden Power in the U.S. Economy

A surprising surge in productivity at restaurants and other businesses has helped the nation defy expectations of a recession.

By Megan Leonhardt

Updated April 26, 2024, 4:12 pm EDT / Original April 26, 2024, 2:30 am EDT

 

When customers walk into Ali’s Chicken & Waffles in San Diego hungry for a buttermilk fried chicken sandwich or a Surf n’ Bird burrito, they can place an order with a cashier or on a tablet. Owner Genemo Ali, who opened his first restaurant in 2020, finds the hybrid model has helped increase the number of orders processed and boost customer engagement. If a cashier is tied up, a cook doesn’t have to leave the kitchen to assist customers.

 

When customers walk into Ali’s Chicken & Waffles in San Diego hungry for a buttermilk fried chicken sandwich or a Surf n’ Bird burrito, they can place an order with a cashier or on a tablet. Owner Genemo Ali, who opened his first restaurant in 2020, finds the hybrid model has helped increase the number of orders processed and boost customer engagement. If a cashier is tied up, a cook doesn’t have to leave the kitchen to assist customers.

 

Ali estimates that the system has helped him serve at least twice as many customers as cashier service alone. “Technology doesn’t take away the job; it just enhances the quality,” he says.

The investments in tools, equipment, and technology that businesses like Ali’s have made in the past few years are starting to pay dividends across the U.S. economy, with workers nationwide producing more for each hour worked. That surge in productivity has helped underpin the U.S. economy’s extraordinary expansion, and output enhancements could shield the economy as it shakes off the last pandemic-era restraints.

 

Although the seeds of the recent productivity boom were planted before the Covid-19 outbreak, the pandemic was a watershed moment for businesses and consumers, demanding that both find new ways to adapt to changed circumstances. It pushed businesses like Ali’s to speed up operations with more technological assists, retailers to beef up online shopping tools, and white-collar workers to embrace remote and hybrid work models that helped connect colleagues across cities, states, and countries. Many of those transformations improved workplace productivity and helped corporations boost profits, even during turbulent times.

 

 

As a result, the economy continued to post solid growth, defying predictions of an imminent recession and upending the Federal Reserve’s interest-rate-cutting plans. While many economists expect growth to cool—and it has, with the economy expanding at a disappointing 1.6% annualized rate in the first quarter—increased labor productivity could help to insulate the U.S. from stagnation.

“There are reasons to be optimistic that we’re at the start of something more substantive,” says Mark Zandi, chief economist at Moody’s Analytics.

 

Measuring Productivity

Labor productivity is the measure of how quickly and efficiently workers generate goods and services. It is a volatile data set that the Bureau of Labor Statistics calculates by dividing real output by total hours worked. The BLS releases an estimate every quarter.

 

Productivity growth typically reflects capital improvements, such as tools or equipment, that increase labor quality and provide workers with the ability to improve capacity. Ultimately, gains in productivity lead to improved living standards and greater consumption.

Labor productivity grew at an average annual rate of 1.6% from 2020 to 2023 when smoothing out pandemic volatility, according to the BLS. That’s up from a decadelong average of 1.2% growth in the 2010s, but below the 2.8% average annual growth rate seen during the last big productivity boom, from 1995 to 2005, which was largely attributed to the proliferation of computers and the internet, and increased business competition.

 

 

 

Total factor productivity, another measure that includes both labor and capital outlays, also showed growth last year, albeit a smaller uptick of 0.7%. The government reports TPF data annually.

 

Economists tend to study labor productivity on a long time horizon, comparing decades rather than quarterly shifts. But the uptick in worker efficiency recorded in the second half of 2023 was so strong that it’s worth examining. Labor productivity increased by an estimated 3.3% in last year’s fourth quarter, kindling optimism among many economists that the U.S. is beginning to shift to structurally higher-trend growth in the coming years

 

[Editors’ note: The Bureau of Labor Statistics issued a press release on April 26 in the afternoon indicating it was correcting its previously published labor productivity data for first-quarter 2019 through fourth-quarter 2023 due to a computation error that distorted the hours-worked ratios. The BLS issued revised estimates of quarterly and annual labor productivity data, and will issue final figures on May 2. Fourth-quarter labor productivity previously was reported as 3.2%. This story and related charts have been updated to reflect the initial corrected estimates.]

 

Increases in real outputs played a critical role in helping the U.S. avoid a much-anticipated recession last year, says Edward Yardeni, president of Yardeni Research. “Productivity is like the economy’s fairy dust,” he says.

 

Productivity developments are of particular interest to Federal Reserve officials, as the faster pace of wage growth might have been more inflationary without the labor efficiencies. The relationship of productivity to inflation and economic growth probably will factor into the Fed’s rate-cut decisions this year. The central bank’s policy-setting committee will meet again on April 30 and May 1.

 

Behind the Gains

One of the biggest drivers of increased productivity has been public and private investment. Five of the largest technology companies— Alphabet GOOGL10.22%, Amazon.com AMZN3.43%, Apple AAPL-0.35%, Meta Platforms META0.43%, and Microsoft MSFT1.82% —invested $400 billion last year, half directed to research and development, according to Olivia White, director of the McKinsey’s Global Institute, the firm’s business and economics research arm. That’s up from roughly $71 billion in 2017, and $127 billion in 2020.

 

 

 

 

 

 

 

 

 

 

 

Investments, particularly in tech, historically have been a significant driver of productivity growth. When investment fell off after the financial crisis of 2008-09, productivity growth in the U.S. decelerated. “Investment is important, and we’re seeing it coming in again,” White says.

 

Other factors have played a role in driving productivity growth, such as changing labor-market dynamics and new business formation. On the labor front, the U.S. economy has reaped the benefits of low unemployment and the so-called Great Resignation, which led to the turnover of nearly 100 million jobs from 2021 to 2022. Ultimately, that helped to improve the allocation of people and talent.

 

 

Tight labor markets offer workers opportunities to move into more-productive and higher-paying jobs. They also force employers to do more with fewer workers. Employee turnover can be disruptive, but the U.S. quit rate has eased substantially since 2022, falling to 2.2% as of February from a peak of 3% two years earlier, and a prepandemic rate of 2.3%. Longer tenure can add to workers’ productivity.

 

“The excess supply, especially of labor, went away and forced companies to think about capital-for-labor substitution,” says Jason Draho, chair of the U.S. investment strategy committee at UBS.

 

This shift typically is a good indicator of productivity gains two to three years down the road, Draho says, because companies have no choice but to equip existing workers with better tools, more capital, and technology. Starbucks, for example, has invested heavily in digitizing its supply chain and store operations since 2019. The company reported in November that the changes helped lead to 30% labor productivity growth.

 

Working from home probably had an impact, as well, pulling more Americans into the workforce who traditionally have recorded lower participation and productivity rates. Even before the pandemic, performance among call-center employees working from home improved by 13%, according to research from Nick Bloom, a professor of economics at Stanford University and an expert on remote work.

 

Bloom estimates that well-organized hybrid workers typically see 3% to 5% more productivity, while Goldman Sachs research has found that remote-work productivity gains generally have been about 3%.

 

New business formation might be one of the biggest drivers of recent productivity growth, and has helped set the U.S. economy up for continued success. Americans filed 17.3 million new business applications from January 2021 to March 2024, according to data from the U.S. Census Bureau. In the past three years, monthly applications have nearly doubled relative to prepandemic levels going back to 2004.

 

 

The uptick is significant because new businesses tend to have higher productivity, probably reflective of the fact that they launch with the newest technologies and workers with up-to-date skills, according to Lucia Foster, chief economist at the U.S. Census Bureau. While new business applications have slowed in recent months, the productivity gains of new entrants are far from over.

 

“All those businesses forming would generally mean more innovation, more entrepreneurship, more technological change, and higher productivity growth,” Moody’s Zandi says. “We’re four years into this surge in business formation, and companies are becoming more stable and ingrained in the economy—and probably starting to generate those productivity gains.”

Other Growth Engines

While labor productivity might help to drive and stabilize the recent economic growth, broader labor-market gains have been a significant contributor to the economy’s resilience. Although the U.S. job market is gradually normalizing after three years of outsize growth, payroll gains remain healthy, layoffs and unemployment are low, and wages rose 4.1% year over year in March, outpacing the rate of inflation. “You’re not seeing cracks” in the labor market, says Sarah House, a senior economist at Wells Fargo.

 

The U.S. added 303,000 jobs in March, surpassing both expectations and prepandemic payroll growth. Given demographic trends, the rate of employment growth should have slowed as older workers aged out of the labor market. But immigration has driven faster population growth and is adding to the nation’s workforce.

 

Immigration could also help to sustain new business formation and productivity. Historically, immigration has led to greater productivity over time, in part because immigrants tend to start companies at a higher rate than the native population, Zandi says.

 

While demand for workers has cooled in some parts of the economy, small businesses are still hiring. About 56% of small-business owners reported that they hired or tried to hire workers in March, the same percentage as in February, according to data from the National Federation of Independent Business.

 

Skilled workers remain in demand. Four in 10 private companies surveyed by Deloitte in February 2024 said their top strategy to boost productivity is to hire qualified or skilled talent.

 

“Businesses are waking up to some of the demographic challenges that we have, and they’re thinking about labor a little bit differently,” says Wells Fargo’s House, noting that many employers now value workers more than they did before the Covid pandemic.

 

That could help to cushion the labor market from some of the negative effects of higher interest rates and quell employers’ impulse to cut workers if the market turns down. Limiting layoffs would also bolster consumers’ finances and spur spending. Total retail sales jumped 0.7% in March, while the data for February were revised higher.

 

Last year’s boom in consumer spending, which accounts for about 70% of economic activity, helped lift gross domestic product by 2.5%, adjusted for inflation. Demand remains fairly healthy, although consumers are pulling back from the pandemic-era glut, based on the latest GDP report, which came in well below consensus expectations. The report is the first of three GDP estimates, and is based on data subject to revisions.

Des Moines, Iowa–based business owner Mike Draper has been a beneficiary of the growth in consumer spending. Draper opened the first of his Raygun printing, design, and clothing stores in 2005 and has since expanded to nine stores and a production facility, with a tenth store opening this summer.

 

“The hardest thing about the economy during the past two years was hearing people worry about the economy,” Draper says, adding that recession predictions don’t square with what he’s seeing. While spending patterns have become a bit less predictable, he says, he hasn’t seen consumers pulling back yet.

 

The pandemic forced Raygun to “speed up content release,” says Draper, who is optimistic about the outlook for the company and the economy.

 

“America is just on this unbelievable winning streak that started with inventing a vaccine, and it has gone on from there,” he says. “I can’t wrap my head around what people are so bummed out about.”

Reasons for Optimism

The U.S. probably has wrung out by now the majority of the productivity gains from pandemic-era business upgrades and workforce dynamics. But that needn’t be the end of the story. Continued public and private investment could provide tailwinds, especially when paired with emerging technologies such as generative artificial intelligence.

 

Government-funded research and development in nondefense sectors historically has improved productivity, and recent legislation, including the Chips Act and the Inflation Reduction Act, probably will help to boost U.S. productivity in the medium and long term, says Andrew Fieldhouse, an economics professor at the Mays Business School at Texas A&M University.

 

Fieldhouse’s research shows that the effects of government R&D boost productivity for eight to 15 years after an increase in appropriations. In the past two fiscal years that ended on Sept. 30, Congress hasn’t come close to appropriating the full amount authorized by Chips. That legislation could have an impact on productivity growth for at least the next five to 10 years, he figures.

 

Additionally, real manufacturing-construction spending doubled from 2022 to early 2023, coinciding with healthy growth in private, nonresidential fixed investment. “All of this should be giving workers more factories and more equipment to work with, boosting labor productivity,” Fieldhouse says.

 

Innovation holds even greater potential for increasing U.S. labor productivity. Goldman Sachs projects that the impact of AI could boost GDP growth by up to 2.3% by 2034, although adoption of the technology is still in its infancy.

 

Only about 3.9% of businesses nationwide have used AI—including machine learning, natural language processing, virtual agents, and voice recognition—to produce goods or services, according to the Census Bureau’s November 2023 Business Trends and Outlook Survey. Still, about 87% of private businesses recently surveyed by Deloitte expect AI to deliver increases in their labor productivity in the next three years.

 

Other recent innovations also could improve productivity, including mRNA vaccines, green transition technologies, cloud computing, robotics, and even advances in material science. “We can get myopically focused on generative AI, but it surely shouldn’t be the only technology that’s boosting productivity in the future,” says McKinsey’s White.

 

It is unclear how transformative or ubiquitous any of these advances will be, and estimates of their potential impact vary. Nor is it reasonable to expect that productivity will grow in a linear fashion, increasing in every quarter. But just as the U.S. economy’s strength has stunned almost everyone, from economists and policymakers to investors, productivity could prove surprisingly robust in the years ahead.

 

Write to Megan Leonhardt at megan.leonhardt@barrons.com