April 24, 2024

Productivity continues to rise in a potential game changer for the economy

It is no surprise that during a time of high inflation, high borrowing costs and persistent labor challenges, businesses were forced to become more efficient by making productivity-enhancing investments.

Since the pandemic began, our quarterly RSM US Middle Market Business Index survey has shown an increase in actual and planned outlays on capital expenditures. Those investments are now paying dividends across the economy.

With recession risks fading, businesses have signaled a more aggressive stance when it comes to investment plans, according to the results from our first-quarter survey. Nearly half, or 48%, of middle market senior executives polled said they had increased spending on capital expenditures, and 59% said they expect to do so over the next six months.

But it is too soon to claim that there is a permanent structural change in productivity, as investment choices have become more selective amid high borrowing costs.

Research around some of the popular explanations for a structural shift in the labor market, like work-from-home or investments in artificial intelligence, remains inconclusive. We do not expect the impact of artificial intelligence investments to show up materially for another three to five years.

Still, the short-term productivity gains because of upgraded equipment, factories and technologies in the past two years will help the economy continue to run strong instead of hot this year.

And leads to the mythical rising tide that lifts the economic fortunes of all Americans, no matter where they stand on the income ladder. 

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