Biden’s economic dreams get boost from corporate spending spree

·6 min read

U.S. companies are pumping money into new technology equipment at a blistering pace, fueling hopes that President Joe Biden’s plans to fire up the economy will lead to stronger wages and higher longer-term growth.

The jump in corporate investment in computers and other information technology is the biggest the U.S. has seen in decades — and not just in comparison to what was spent during the pandemic recession. In the first three months of the year, investment was up nearly a quarter from the same period in 2019, when the economy was humming along in the year before the coronavirus struck.

Now, as the nation emerges from the bruising crisis and trillions of dollars in government spending flows through the economy, nearly 60 percent of chief executives at large corporations expect to increase overall investment this year as they work to meet surging consumer demand and become more optimistic about the outlook of Biden's economy, a new survey shows.

Though the rapid spread of technology and automation poses risks, especially for Black and Hispanic workers who are among the most vulnerable to mass displacement, the spending spree could be a boon for Biden. The president and the Federal Reserve have pushed to raise productivity and keep the economy going in the face of mounting concern about roadblocks such as underwhelming job growth and a potential spike in inflation, which could trigger growth-choking interest rate hikes.

“There is a real awakening from a decade-long slumber” in business investment, said Skanda Amarnath, director of research and analysis at Employ America, a nonprofit group that advocates for workers. “This is a healthy and welcome development.”

Biden has been promoting his plans to spend trillions more on shoring up U.S. infrastructure as crucial to the country’s long-term economic health and competitiveness and the key to producing more well-paying jobs.

Productivity gains, which have been disappointing since the mid-2000s, are central to that effort, since they're linked to real wage increases. If technological investments strengthen worker output, that can create a sweet spot where businesses are able to more efficiently deliver goods and services and people have the means to buy what those businesses produce.

“Automation’s going to be absolutely essential to competitiveness,” Raytheon Technologies CEO Gregory Hayes said on a call Tuesday by the Business Roundtable, a group of chief executives of top U.S. companies that conducted the survey.

If businesses keep up the pace of investment in information processing equipment for the rest of the year, it would amount to $610 billion, compared to an annualized $494 billion in the first quarter of 2019 — a jump of 23.5 percent. That's more than twice the rate that investment rose in the first quarter of 2018 from the first three months of 2017, following the Trump tax cuts.

While business spending on tech dipped in the first quarter of 2020, the decline was less dramatic than in the last couple of recessions. Even so, the first quarter of this year saw the largest percentage spike since the 1970s, year over year, in terms of nominal dollars spent and the biggest inflation-adjusted increase since at least 2002, the period when comparable data are available.

Investments in the broader categories of equipment and intellectual property products, which would include software and artificial intelligence, are also up markedly.

But economists caution that it’s too early to tell whether the burst of investments over the past several months will continue.

“You had a nice spurt here in tech investment,” said Michael Feroli, chief U.S. economist at JPMorgan Chase. “Some of that may just be transitional as we retool the workplace for remote arrangements.”

The picture is also more complex than some of the topline figures suggest. There are areas where business spending hasn’t been as strong; structural investments like new factories — a bullish sign for the economy — haven’t yet seen the same boost as other areas.

And investments in automation run the risk of slowing job and wage growth over time as workers are displaced.

Daron Acemoglu, a professor at the Massachusetts Institute of Technology who studies the effects of automation on labor, said it matters greatly whether the technology makes it easier for people to do their jobs or replaces them.

“Recovery can be fueled by technologies that automate more and more jobs, or it can be fueled by technologies that create opportunities for workers and find ways of reintegrating them back into the labor force,” he said. “The former will lead to a recovery that will leave a lot of workers behind.”

Acemoglu warned that tax policy provides some incentives for companies to replace workers by making it more expensive to employ people than to buy machines, even if it doesn’t even necessarily increase output.

“Heavy-handed regulation will not work, but there are ways in which governments can steer innovative effort in a more socially beneficial direction,” he said.

According to research from the Brookings Institution led by Kristen Broady, Black and Hispanic workers are overrepresented in jobs that could be eliminated through automation, such as truck drivers, cooks and cashiers.

Policymakers and companies “should consider pathways for these workers to receive necessary training to work with automation or move into a new job or field if necessary,” Broady said.

But there might also be counterintuitive benefits to better technology. Because the U.S. population is aging, the workforce is projected to be smaller over the next decade, said Susan Lund, a leader of the McKinsey Global Institute, the firm’s economic research arm.

“We’re actually moving into an era of a labor shortage, so even automation that substitutes for jobs doesn’t seem to be a threat or a problem at this moment,” she said, though she acknowledged that could shift over time. “The question is, does this open up opportunities for employees to do more meaningful jobs?”

Higher productivity should also help ensure that rising wages lead to more economic benefits for workers, rather than potentially feeding inflation. A recent study from McKinsey found that productivity could pick up by more than a percentage point each year through 2024 as tech investments grow.

“A lot of people see productivity growth as being at the expense of labor,” Employ America’s Amarnath said. “I think that misses the point. What counts as progress is the ability to deliver more things to more people without making people have to work terrible workweeks.”

“Cost-cutting, like layoffs, reflects underinvestment usually,” he added.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting