Look at the retail sector and see the power of the new industrial revolution

Summary: Economists and financial experts are baffled by events because their minds know only the past and so do not see the new industrial revolution at work, slowly in its early days. Look at the retail sector. What explains unusually high corporate profits, rapid growth in sales — along with slow growth in jobs and wages? Automation; better methods and new tech. These are just the first touches before we encounter the giant wave that lies ahead.

Retail Technology

In this eighth year of growth since the great recession (worst since the 1930s), many experts struggle to explain the US economy’s slow growth — its failure to take off and return to normal flight. The retail sector shows the slow growth, and a possible cause. For over two decades retail sales have been growing faster than retail jobs, and jobs faster than wages. These trends are accelerating. Here are the total changes for the retail sector from January 1992 (the earliest data) through March 2016.

  • Sales: up 167% ($4.7 trillion, 26% of GDP).
  • Jobs: up 24% (16 million, 7% of non-farm jobs).
  • Real wages: +0.9% (avg hourly wages of production & non-supervisory workers).

The obvious causes are better methods and new technology. The two are mutually re-enforcing, and still in the early stages. McDonald’s is automating order-taking, cutting costs and increasing customer satisfaction. Bossa Nova’s retail robots stock store’s shelves. And a thousand other innovations are made, large and small, every month.

Now for the worse news. These numbers are for the legacy retail stores. The stores of the future are online. Since January 1992 their sales have risen 550%, but they have added only 30% more workers. They are slowly destroying much of the legacy retail industry. Eventually retail employment will tip over and shrink.

See the graphs that show these trends

The growing gap between retail sales and retail jobs (Jan 1992 = 100)

Retail automation

Average real hourly wages of production & non-manager workers in retail
No gain in this new century, so far.

Average real hourly wages of production & non-manager workers in retail

The large & growing gap between sales & jobs in online retail (Jan 1992 = 100)

Retail automation - nonstore

Conclusions

Real wage growth has slowed to a crawl for most people. No surprise that profits have risen to near their historic highs while overall GDP grows only slowly. There is too little consumption to drive growth. The 1% invest much of their income, and the 0.1% invest most of it — spending that much would be a 24-7 job (see the IRS data).

These effects combine with the other deep structural changes running today. For example, we’re producing fewer of the superstar young firms that generate jobs. As a result of this and a hundred other similar trends, growth has been slowing for decades, and is predicted to continue slowing.

These trends — and their coming acceleration from the new wave of technology — will destabilize our society. We can successfully manage them, but appear unlikely to do so until after the wave hits. It’s a tragedy for us and our children, avoidable only if we mobilize and act soon.

Other posts in this series

  1. 50 years of warnings about the new industrial revolution. It’s here. Ignore the naysayers.
  2. The coming Great Extinction – of jobs.
  3. Our future will be Jupiter Ascending, unless we make it Star Trek.
  4. Nike swooshs us into a future of fewer jobs, low pay.
  5. Happy Meals: now with 20% less people! — McDonald’s automates.

See all posts describing the 3rd industrial revolution and about inequality and social mobility.

For More Information

For an introduction to the problem see “Will Humans Go the Way of Horses? Labor in the Second Machine Age” by Erik Brynjolfsson and Andrew McAfee in Foreign Affairs, July 2015.

If you liked this post, like us on Facebook and follow us on Twitter. See other posts about the new industrial revolution, especially these…

 

 

See these books to learn about the new industrial revolution now in progress…

Rise of the Robots
Available at Amazon.
The Future of the Professions
Available at Amazon.

9 thoughts on “Look at the retail sector and see the power of the new industrial revolution

  1. Serious question (and I’ve had a hard time finding an answer online…or even figuring out how to ask it properly for Google): what is the general effect of the 1% investing most of the income (rather than spending it)? To a layperson, them investing the bulk of it sounds like a *good* thing.

    1. ch1kpee,

      One of Keynes’ great insights (he showed the theoretical basis for this old insight) was the <a paradox of thrift. The Wikipedia entry explains it adequately.

      Much of economics is counter-intuitive because what’s true for the individual is not so for the society (i.e., if “everybody” does it). Too much saving is a classic. Ditto the difference between debt of an household and that of the government. Ditto on a generational basis — the world cannot en-burden the future with debt.

  2. I understand how spending and consumption drives the economy, but I’m still unclear on how investment detracts for it.

    From the wiki article you shared:

    “Keynes distinguished between business activity/investment (“Enterprise”) and savings (“Thrift”) in his Treatise on Money (1930):

    …mere abstinence is not enough by itself to build cities or drain fens. … If Enterprise is afoot, wealth accumulates whatever may be happening to Thrift; and if Enterprise is asleep, wealth decays whatever Thrift may be doing. Thus, Thrift may be the handmaiden of Enterprise.

    But equally she may not. And, perhaps, even usually she is not.”

    The 1% aren’t just burying cash in the backyard or stuffing it in the mattress; they’re investing it in the stock market, bonds, commodities, or otherwise giving it to other people to use to make even more money. *That* is what seems counter-intuitive to me. I would think all that investment would mean the businesses receiving those investments can grow, hire more people, open more stores, etc. etc. and otherwise grow the economy further.

    That’s the question I’ve had a hard time finding an answer to.

    1. For example, here’s some of the Heritage Foundation’s propaganda on why we shouldn’t raise taxes on the rich (take with a mine’s worth of salt)

      “The tax code should collect revenue in the least economically damaging way possible. Raising rates on the rich damages economic growth because it reduces the incentives to work, save, invest, and accept economic risk–the ingredients necessary for economic growth.

      “Raising taxes on the rich hurts workers at all income levels–especially low- and middle-income earners. The rich are the most likely to invest. Their investment allows new businesses to get off the ground or existing businesses to expand. This creates new jobs and raises wages for Americans at all income levels. Taxing more of their income transfers money to Congress that they could otherwise have invested. This means the economy forgoes new jobs and higher wages that the investment would have created for less effective government spending.”

    2. ch1kpee,

      “That’s the question I’ve had a hard time finding an answer to.”

      I can’t imagine why. It’s covered adequately in every Econ 101 textbook. That wikipedia entry explains it clearly. Please challenge it elsewhere. Many economists have blogs, perhaps one of them will discuss it with you. This isn’t the forum to challenge basic science.

  3. Oh trust me, I don’t believe any of that Chicago School supply-side, lol.

    I read that article a little more careful and now it’s becoming more clear (savings is always equal to investment, that’s what I was missing and what was confusing me).

    Adding “paradox of thrift” to my Google search parameters is finally getting me the information I was trying to find. Thank you for the knowledge!

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