Wednesday, July 30, 2014

Shilling believes in technology

I believe much of today’s new technology -- the Internet, biotechnology, semiconductors, wireless devices, robotics and 3-D printers -- is in its infancy. Collectively, they have the potential to rival the rapid growth and productivity-generating effect of the American industrial revolution and railroads in the late 1800s. Mass-produced autos and the electrification of factories and homes, which led to electric appliances and radio in the 1920s, offer yet more examples. Today, only a third of the world’s population is connected to the Internet but 90 percent live within range of a cellular network.

Sure, productivity (output per hour worked) grew by only 1.5 percent from 2009 to 2012, but that’s normal after a severe recession. I expect it to return to a 2.5 percent annual growth rate -- or more -- after deleveraging is completed in another four years or so. Even in the 1930s, productivity averaged 2.4 percent a year, higher than in the Roaring '20s. In the 1930s, much of the new technology from the 1920s -- electrification and mass production -- was adopted despite the Great Depression.

Rapid productivity growth offsets slower labor force advances. The decline in the labor-force participation rate is likely to slow in coming years once normal economic growth resumes. The rate has fallen as baby boomers retire and discouraged workers drop out of the labor market or stay in college.