Summary
Here we are near the beginning of the eleventh year of the current period of economic recovery and we hear that Amazon is now looking to fill 30,000 job openings.
The economy cannot be that bad off if a company like Amazon wants to hire so many new employees, half of them techies.
Amazon's situation seems to be typical of the "new" Modern Corporation and represents the behavior that produces apparently slow economic growth, yet very low unemployment.
Just recently I wrote about “Economic Growth: Maybe We Are Not Looking At the Right Things.”
In the article I suggested that
--Economic growth, as measured by the rate of change in real GDP, has not been great in recent years and is not expected to get much better soon.
--The situation in the labor market shows a much different picture with unemployment at a fifty-year low, large numbers of job openings, and rising wages.
--Maybe we need to back off from some of the economic models we have been using and start looking at the macro-economy on a more micro basis.
Now, we have the news that “Amazon has 30,000 Open Jobs.”
Karen Weise writes in this New York Times article, “The vacancies, which Amazon said it hoped to fill by early next year, are permanent jobs and do not include seasonal positions for the warehouse workers and drivers that the company typically hires to handle the spike in orders it gets around Christmas. More than half the jobs are tech oriented, and roughly a quarter are for warehouse work, the company said.”
Whatever is happening, it seems as if there are plenty of job openings available in the economy, even though this fact does not seem to be coordinated, today, with the economy’s output of goods and services.
Federal Reserve officials expect the real economy to grow by 2.1 percent this year and only 2.0 percent next year. Pretty tepid.
But, as Ms. Weise comments: “In August, the national unemployment rate remained near a 50-year low at 3.7 percent, even as hiring slowed in the face of the trade war between the United States and China and the lagging global economy.” And unemployment is expected to remain around this low rate.
Amazon (NASDAQ: AMZN) is obviously contributing to this situation and, my guess is, other major technologically orientated organizations, like Microsoft, and Apple, and Alphabet, are helping to create this situation.
And, what is the common thread running through this picture. These are all corporations I have included in the “catch-all” title, the “new” Modern Corporation.
What are the characteristics that create such a situation?
Well, the output of the “new” Modern Corporation is, in almost all cases, connected with intellectual capital, an intangible source that helps these institutions build networks and ecosystems that dominate the current era. It is also true that given the “intangible” nature of much of the output of the “new” Modern Corporation, it is hard to measure relative to the manufactured goods that have been the major component of National Income Accounting, the system that constructs measures like Gross Domestic Product.
In other words, the economy may be growing at a faster rate than we now think it is because we are not measuring appropriately. As the title of the article I cite in the first paragraph states…”Maybe we are looking at the right things.”
Another relevant aspect of the “new’ Modern Corporation is that these organizations can generate massive scale at zero or close to zero marginal costs. They are huge institutions and are in the process of becoming even larger.
Furthermore, they have the cash to complete this effort, cash from the economics of information goods.
In the “new” Modern Corporation scale is built around the foundational intellectual capital of the organization whose expansion seems to have no end. Human capital is needed and this resource is required even though we can’t fully measure the contribution that is being made to the increasing size of the company’s networks.
In other words, scale is being achieved, seemingly with little or no increase in labor productivity. At least the way we measure things right now, we are achieving low unemployment…but, little or no economic growth.
So, as suggested earlier, maybe we need to reconsider how we are explaining things.
First, the growth rate of real GDP may not be as meaningful in the future as it has been in the past. If there is going to be a focus on aggregate economic behavior, a new measure may be needed.
Second, old-time business cycles may not be so important any more. The “new” Modern Corporation brings products to market based on “time pacing” and not just according to demand signals from the market place. Firms “time pace” when they bring their new products to market based upon timing patterns, say every three years, not when all the innovation is complete or when demand builds up due to monetary or fiscal stimulus.
Third, credit inflation, as I have stated many times, is connected with the financial engineering of corporations and monetary and fiscal stimulus tends to go into asset prices rather than into physical capital investment. For example, it has been estimated that about two-thirds of the December 2017 tax reform benefits went into stock buybacks. This does not result in a cyclical bump up in real investment expenditures.
Fourth, the current economic recovery was driven by a stock market wealth effect that drove consumer spending. Consumer spending has been the backbone of the ten-year expansion. Consumer spending represents 70 percent of real GDP spending and changes very slowly over time, it does not show dramatic cycles.
Still, there are more factors that help to explain the steadiness of the economic recovery and why we have not experienced a faster period of growth. We seem to be in a new era of governmental policy-making, a new era of corporate management, and a new era of technological innovation.
As a consequence of these things, we need to look at the economy in a different way.
Perhaps the economic growth figures are not telling us a lot about the overall recovery.
The unemployment rate is at a fifty-year low and yet many people are unhappy, holding two, maybe three jobs to make ends meet. Yet Amazon is looking to fill 30,000 jobs. The labor force participation rate is rising, meaning that some people that have left the labor force are rejoining it. These are very good signs.
But, to understand what is going on, we may need to get away from the aggregated GDP numbers and look more into industries, sectors, labor force characteristics, innovations, and so on. And, investors are going to have to do this as well. Investors are going to have to look further than just what the aggregate numbers are showing.
For the full original article, click here