May 6, 2024

Hi everyone. My name’s Taylor St. Germain with ITR Economics, and welcome to this edition of TrendsTalk. We at ITR Economics are your unbiased and apolitical source of economic intelligence, and today I wanted to take a step back and look at the longer term view, specifically the need to invest and to automate, to embrace AI and some of these technologies and trends that will help us be more efficient as we navigate this immediate future.

But let me take a step back to start. When we think about our forecast for the overall economy, I’m referencing the industrial economy. We’ve talked in the past about some weakness in 2024, and we’re still seeing that as we sit here today with the industrial economy, the annual growth rate, just recently passing below that zero line. But again, I want to look longer term.

As we come out of this weakness in ’24 we’ve talked a lot about growth in 2025 and 2026, but we’re also projecting growth in 2027, 2028, and 2029. Now, that ultimately leads us into the 2030s where we expect the next major period of economic decline. But overall, as we come out of this weaker period in ’24, we’re preparing for consecutive years of growth, really growth to characterize the second half of this decade. And we at ITR with conversations with our clients, have really placed an emphasis on the need to automate, to innovate, to drive efficiency investments in order to make our existing operation, our existing workforce more efficient. Being able to do more with less. And I wanted to highlight why we have been placing so much emphasis on that as of late. It’s not just the fact that we see this second half of the 2020s characterized by growth, it highlights another trend that we’ve talked about, which is how tight the labor market is.

And as we sit here today for every one job opening, there’s still only .835 people available. We still do not have enough people to fulfill all of our open jobs despite some of the weakness in the economy. It’s very safe to say, given the demographic trends here in the US, that we expect this tight labor market to continue as we look at the second half of this decade. Now, some of that is due to the retirement of the baby boomer generation. If we look at labor force participation rates, that 65 plus category, which characterizes, I would say most of the baby boomers, is only at a participation rate of 19.3%. So this major generation, this large generation, the baby boomers, are retiring and are not participating in the workforce. As a result, we’re finding ourselves with a bit of a labor constraint as highlighted by that previous metric that I shared for you, only .835 people for every one job opening. And as this baby boomer retirement continues over the coming years, this labor constraint is going to likely be exacerbated.

And so in order to offset this labor challenge, this demographic shift, we need to find ways to make our existing workforce more efficient so that they’re able to take on demand that, again, positive demand that we expect to characterize really the second half of this decade. That’s why we’re placing so much emphasis on automating, innovating, embracing AI and some of these trends that will make us more efficient moving forward.

Now, some of you might say, “Well, Taylor, automation, innovation, AI, that’s all great, but what about immigration? Can immigration fix that problem, this labor constraint problem?” Well, if you look at the 12 month moving total for lawful permanent residents immigrating to the US, that 12 month moving total is just above 1 million. But if you look at the number of open jobs in this country, US total private job openings, that 12 month moving average is 8 million. So for being simple, immigration is only solving one eighth of the labor constraint and 1 million lawful residents, 8 million job openings, immigration’s only solving one eighth of that problem.

Now, we’re apolitical here. Could the government address immigration? They sure could. Am I going to put all of my hope or eggs in that basket, so to speak? Likely not. It’s pretty challenging to put faith in the government to make our lives better, I think that’s a pretty safe thing to say. So we need to take it upon ourselves as businesses to find ways to be more efficient in order to be able to take on growth that’s going to characterize these next about five years. Otherwise, we’re going to find ourselves in a continuous capacity constraint. So it’s very important that we’re embracing some of these trends.

One last note that I would leave you with. This data comes from AlphaSense and Morgan Stanley Research, it was published in Bloomberg. Corporate transcript, mentions of operational efficiency in the first quarter of 2024 were at the highest level that they’ve ever been since these data sources have been tracking the mention of operational efficiency. So a lot of publicly traded companies out there are recognizing this trend. We need to embrace ways to make our current operation, our current labor force more efficient so we can take on this growth for the future.

So embrace some of these technology trends. 2024 is a great time to make these moves because if you’re making these investments at the bottom of the economic cycle, those investments will be fruitful for you in terms of taking on growth in the second half of this decade. We’ll talk more about the second half of this decade and the 2030s in podcasts to come.

I sure hope you found this information helpful. Please remember to like and subscribe to TrendsTalk wherever you listen to your podcast, and I’m looking forward to seeing you all on the next one. Thanks for joining me here today.