Automation Boom Drives Productivity Gains, Helping Explain Economic Resilience

Companies like Batesville Tool & Die invested in automation and technology to increase efficiency and productivity due to worker shortages. This helped them produce more with less staff.

The resulting productivity boom has helped explain why the US economy has remained resilient despite high interest rates that typically cause recessions.

Annual productivity growth had averaged just 1.5% before the pandemic but shot up to 3-5% in 2022 as companies automated in response to labor shortages and rising demand.

Increased productivity provides more leeway for wage growth without spurring high inflation. This shift could allow above-average pay hikes to continue without breaking the Federal Reserve's 2% inflation target.

While automation displaces some workers, it creates new jobs in repairing and operating technology. Retirements also ease transitions, allowing higher productivity without necessarily killing jobs.