At a high level, what makes an economy grow is extremely simple, and yet very few seem to understand it. The growth of an economy is a function of just two factors: the growth in the labor force and the growth in productivity. This article will explore how these two factors may lead to an acceleration of disruptive technologies and their impact on consumers.
Labor Force Dynamics
In the 1950s, the growth of the civilian labor force averaged 1.1% a month over the prior year, accelerating to 1.7% in the 1960s, then peaking at 2.7% in the 1970s, which helps explain some of the inflationary pressure during the 1970s. As the labor force grew at a rapid pace, so did demand for goods and services. In the 1980s, the pace slowed to 1.7% over the prior year, down to 1.0% in the 2000s, 0.6% in the 2010s, and an exceptionally weak 0.4% in the 2020s (through August 2023, the latest available data). The profound lack of enthusiasm from Millennials and Gen Z for having kids, means that without immigration, the labor force will contract in the future
From 2000 to 2018, the number of job openings had never been higher than the number of unemployed, according to the Bureau of Labor Statistics. But as of July 2023, there were 3 jobs for every 2 people looking for work. The U.S. isn’t alone in its dwindling labor pool. My work leads me to travel between the U.S., Italy and Ireland and I’ve seen first-hand how restaurants are forced to reduce hours because they cannot find enough staff. I’ve heard from people in sectors ranging from tourism to technology across all three countries complaining about the same thing – they cannot find people to do the work. This is a problem in many developed nations and China.
Slowing Productivity
In the ten years from 1955 to 1965, total factor productivity in the U.S. grew at an average annual rate of 1.3%. And then from 2005 to 2015, the pace had slowed to 0.3%. We see a similar trend in nonfarm productivity. During the 1950s, nonfarm labor productivity (output per hour) rose an average of 2.8% every quarter over the prior year. In the 1960s, growth was at 2.7%, but by the 2010s, it had slowed to 1.1%. While we’ve seen incredible advances in technology, productivity has been slowing.
Some will argue that these metrics don’t accurately measure productivity because they come from an era when the economy was primarily driven by manufacturing and doesn’t accurately reflect productivity improvements in other parts of the economy. There is some merit to that and that’s partially the point. The average person walking around in a developed nation now has access to nearly the entirety of human knowledge in the palm of their hand, is able to transact with people all over the world and has the luxury of being outraged over a total stranger’s opinion on social media. But delivery and long-haul drivers have now been driving deliveries all over the place for decades. Taxicab drivers have better mapping tools today than 50 years ago, can connect with passengers in more ways, and can go provide the service through different means – for example, Uber Technologies (UBER) and Lyft (LYFT) - but they are still sitting in the driver’s seat for hours on end, while trying to maintain a semblance of sanity on roads that are increasingly jammed with cars.
The bottom line is that while we have seen mind-boggling advances in the realm of data (processing, transporting, storing and generating), advances in the physical world have not kept pace, as is evidenced by the weak gains in productivity. But just like with the Industrial Revolution, advances in tools and technologies occur well before the impact of their widespread implementation can be felt. While the ability to communicate, work and transact with people all over the world has had a massive impact on nations and global politics, it hasn’t led to the kinds of advancements imagined in the 1984 film 2010: The Year We Make Contact or the 1989 film Back to the Future II’s vision of 2015.
Tech Disruption
We don’t have enough people to do the work. The amount of work that has been getting done doesn’t reflect what was expected given the advancements in technology. But that is changing, and as it does, things are going to get messy. We can see the tensions rising with the number of strikes. For the first time ever, 146,000 United Auto Worker union members are walking off the job in a strike against the Big Three automakers, Ford (F), General Motors (GM), and Stellantis (STLA), joining the roughly 190,000 other workers including actors, screenwriters, and hotel staff already on the picket lines. More Americans will be on strike as of September 15 than at any point since the 1980s.
These strikes are symptoms of both the tight conditions of the labor force and the coming impact of disruptive technology as everything from the way automobiles are made and serviced, to the creation of entertainment, to the delivery of goods will experience meaningful changes. The acceleration towards this new future economy is happening now because the necessary ingredients are in place:
- More widespread high-speed connectivity
- Improved processing power combined with AI
- Ubiquitous sensors and the data that comes with them
- Time learning from the data and using/refining the disruptive tech tools
Disruptors
These are a few of the companies that are driving changes in the way we develop, manufacture and transport.
Amazon (AMZN) has its fingers in nearly every aspect of this new economy. The company reports that 75% of customer orders are handled in part by robotics. Amazon Robotics creates and deploys autonomous robots for its fulfillment center operations, which have reportedly cut its costs by up to 20% and are critical to the company’s future. Last June, a mid-2021 Amazon internal research report predicted that, “If we continue business as usual, Amazon will deplete the available labor supply in the U.S. network by 2024.”Autonomous Vehicles and Advanced Driver-Assistance Systems require intensive, highly scalable development platforms which is why many AV developers are using Amazon Web Services. The company is using artificial intelligence to speed up deliveries and help customers find the right products online.
UiPath (PATH) UiPath offers robotic process automation software that implants AI into robots to help them perform tasks more efficiently and continue learning.
Fanuc Corp (FANUF) is a global leader in computerized numerical control systems (CNC) and industrial robots. It derives around one-third of its revenues from China, which is facing profound demographic headwinds.
One of the biggest needs in logistics comes from trucking. Since the industry was deregulated in the 1980s, it has cycled through boom and bust roughly every 18 to 24 months, according to DAT Freight and Analytics. In 2021, the nation faced a massive shortage of drivers, leading the White House to mobilize programs to attract more drivers. This year has seen one of the harshest freight recessions in years, leading Yellow Corp (YELLQ) to declare bankruptcy in August, shutting down the 99-year-old business with 30,000 employees. This volatility, and the tough nature of the job on drivers’ bodies and personal lives, make for wild price fluctuations and driver shortages. According to data compiled by Statista, the truck driver shortage in the U.S. is expected to climb from just 9,000 in 2011 to 162,000 by 2030. Aurora Innovation’s (AUR) autonomous truck driving software is being tested by companies such as FedEx (FDX), Uber, and Schneider. Alphabet Inc (GOOG) has it’s Waymo subsidiary, whose Via unit specializes in freight.
As for passenger transportation, Aptiv (APTV) has an autonomous driving joint venture with Hyundai (HYMTF) whose vehicles were deployed last December on Uber’s network in Las Vegas along with safety drivers. The company has made a similar deal with Lyft. Baidu (BIDU) currently operates driverless taxis across more than ten cities in China and by the end of 2025 plans to be deployed across 65 cities. General Motors (GM) filed a petition with regulators in February 2022 for permission to deploy up to 2,500 self-driving vehicles annually that will have no human controls. The CEO of the GM subsidiary Cruise, which will build the small bus-like vehicles that can transport up to six people, believes that the company will shortly receive permission from the National Highway Traffic Safety Administration (NHTSA). Xpeng (XPEV) is in partnership with the Chinese ride-sharing company DiDi Global (DIDIY) to develop robotaxis.
No discussion of robotics or autonomous driving would be complete without mentioning Tesla (TSLA), which is all over this space from multiple angles. In 2022, its Optimus humanoid robot walked on stage with CEO Elon Musk and the first deliveries of Tesla’s Semi truck were last December. The over 4.5 million Tesla vehicles already on the road (as of Q2 2023, according to Statista) are all using and helping to improve Tesla Vision AI, which also powers its Semi and Optimus. Then there is Tesla’s Dojo, a supercomputer designed for computer vision video processing and recognition that will be taking advantage of all that data coming in from the growing fleet of Tesla’s already on the road. Seems like maybe there was some sort of a plan here, doesn’t it?
Now we circle back to that UAW strike as we see a revolution coming in auto manufacturing using 3D manufacturing just as entertainment industry employees are facing enormous changes from Artificial Intelligence. Reuters recently reported that Tesla has now pioneered a way to mold the front and rear structures of its Model Y that will reduce the complex underbody of the EV into one piece rather than about 400 parts using 3D printing and industrial sand in a process the company refers to a “gigacasting.” This process could dramatically slash costs and is key to the company producing millions more EVs in the future at a lower cost.
The bottom line is that we are at a point where macroeconomic forces, technological advances and sufficient industry experience with disruptive technologies are all converging to create the most fertile ground for innovative leaps in productivity that may well exceed anything we have witnessed for decades.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Lenore Elle Hawkins
Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.
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