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

Larry Kummer, Editor

10 years ago

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.

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)

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

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

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.

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.

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