In War Between Man And Machine, Machine Is Winning

By Kathleen Madigan of the Wall Street Journal

In the man-versus-machine competition, machine is winning. And it’s not just Watson beating humans on “Jeopardy.”

Since the recession ended, businesses had increased their real spending on equipment and software by a strong 26%, while they have added almost nothing to their payrolls.

In August, new orders and shipments of “capex goods” — defined as nondefense capital goods excluding aircraft — increased by 1.1% and 2.8%, respectively. In the same month, private payrolls (adjusted for the Verizon strike) edged up a mere 62,000.

For all the talk of uncertainty, the increase in orders is a sign that companies are optimistic about the future. After all, no executive would expand production facilities if he or she thought customer demand was about to stagnate.

In addition, the gain in shipments — up by nearly a 19% annual rate so far this quarter — suggests at least a modest gain in gross domestic product. After the shipment numbers were released, economists at J.P. Morgan raised their estimate for third-quarter real GDP growth to 1.5% from a previous 1.0%.

You can’t fault companies for investing in new machinery rather than hiring new workers. As two news reports detail, labor costs are rising, a function of both private and public pressures.

First, employers face a jump in health insurance costs. The Kaiser Family Foundation reported a 9% average increase in the premiums paid by employers this year. The average yearly cost to cover a family hit a record $15,073, up sharply from $13,770 in 2010.

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