Written by Steven Hansen

I do believe that robotics will be the biggest headwind to jobs growth. The majority of my life has been spent managing systems, and executing changes that would effect reduction of labor hours (and costs). Large organizations have span of control inefficiencies – and the larger the organization, the greater these inefficiencies become.

These inefficiencies magnify in work activities which cannot be defined by time and motion – such as a salesman at an auto dealership. But in all events, once an organization grows beyond 1,000 people – control becomes a significant issue. Control is directly correlated to the number of organizational layers between the head honcho and the lowest person in the organization. Consider how the head honcho communicates with the low person, and whether the head honcho even knows (or understands) what the low person is doing.

This “inefficiency” has been with us for ages – but there are tools available to begin to attack these inefficiencies such as:

• gps trackers to let you know where your employees are
• mobile phones to directly communicate to your employee not in your eyesight
• internet tied cameras so you can see what your employee is doing in certain situations
• computerization of tasks (such as order processing, payroll, etc)

However, the gains from these tools likely are no more than a few percent on the entire USA workforce versus the situation 30 years ago. The prime reason the effect is not greater is that business is faced with analyzing more information which requires more people – this reduces the labor saving effects. Span of control remains a major problem for creating an efficient workforce.

The only real solution to span of control is finding a way to reduce the workforce to more manageable levels.

Another dynamic pushing robotics is employee costs. Robotic costs are falling whilst employee costs are rising. Every business and situation has a different cross-over point where robotics becomes cost and performance advantageous. Most people do not realize that much of the employment costs to an employer are not in the paycheck – but in direct taxes, insurances, facility use, and other administrative costs. Although minimum wage increases will accelerate the rise of robotics, it is most likely that it only moves forward the cross-over point.

One major issue of robotics is acceptance by humans of dealing with non-humans.  Most (83%) jobs are in the service sector.

The current industry ripe for robots is transport and warehousing which employs just under 5 million people. Many articles and posts are in the news daily of driverless vehicles. Even the most diehard robot advocate would not think this entire industry can be replaced in the next 10 years.  But just how many? 10%? 50%? Everyone will have an opinion.

If there was a surge in replacement of vehicle drivers, one would assume there would be a partial countering dynamic of people building and maintaining this equipment. 

Putting the current situation into perspective – non-farm jobs are currently growing at over 3 million per year. This a net growth rate which includes the current robotics dynamic, as well as other automation effects.  As I am a trend person, the trend line will remain (until it changes). I see no evidence yet that the push to robotics is accelerating – and on the contrary there is a general lack of growth of productivity (which would be evident if people jobs were being automated out of existence).

One should not conclude that there is no real danger from automation / robotics – but the danger is not present today.  However, change in tech dynamics can come rather rapidly so what is coming may not be evident until it is well underway.  Consider 20 years ago:  there were very few people with mobile phones – and now most have smart phones with the ability to communicate in any matter in any form from most places on earth.  All it takes is a low cost breakthrough which can be mass produced.

We continue to live in interesting times.

Other Economic News this Week:

The Econintersect Economic Index for March 2015 continues to show a growing economy, but the rate of growth is decelerating. All tracked sectors of the economy are expanding – but most sectors are showing some slowing in their rate of growth. The negative effects of the recently solved West Coast Port slowdown (a labor dispute which had been going on for months) can be seen be seen in much of the raw data – and it will be an economic drag on 1Q2015 GDP. Although beyond our forecast view, we expect a slight economic bounce in the coming months as a trillion dollars annually of cargo begins to traverse the West Coast Ports again in a normal flow.

The ECRI WLI growth index value crossed slightly into negative territory which implies the economy will not have grown six months from today.

Current ECRI WLI Growth Index

The market was expecting the weekly initial unemployment claims at 292,000 to 320,000 (consensus 309,000) vs the 289,000 reported. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 306,000 (reported last week as 304,750) to 302,250. The rolling averages have been equal to or under 300,000 for most of the last 6 months, but this week again exceeded this number.

Weekly Initial Unemployment Claims – 4 Week Average – Seasonally Adjusted – 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line), 2015 (violet line)

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Bankruptcies this Week: England-based Towergate Financial filed for Chapter 15 protection, BPZ Resources, Dune Energy, Allied Nevada Gold, Doral Financial (dba Doral Financial Puerto Rico), Standard Register Company, Chassix Holdings

Weekly Economic Release Scorecard: