Chairman Powell: The Economy Is Not Going Back To Pre-Pandemic
The Chairman of the Federal Reserve, Jerome Powell, held a virtual meeting where he make some very telling statements.
It is evident that COVID-19 has changed a lot of things quickly. The Fed is aware of this since it is coming out in the data.
What this means is that we are entering a new economic era in of how things are structured. Powell believes the Central Bank needs to adapt to this.
Advancement of Technology
There is little doubt that companies invested large sum of money in technology since the pandemic started. The entire "work from home" was kicked off by technological infrastructure being put in place so that people could do their jobs remotely.
Here we see this is having a lasting impact. We covered the struggle that is taking place between employers and workers as there was a push to return people to the office.
It also did not go unnoticed by the Fed.
“It seems a near certainty that there will be substantially more remote work going forward,” Powell said. “That’s going to change the nature of work and the way work gets done.”
Hence, Powell is convinced that this is not a temporary situation. We have to adapt to an economy that is based upon more people working outside the office environment. That will obviously have fallout on a lot of industries.
Again, this is showing up in the data. It is evident where the shift is coming from and how it is playing out.
Powell said the heavy investment by companies in new technology means there will be more jobs in the future associated with maintaining that technology but also potential job losses in industries focused on in-person contact. He said some of those industries may be moving to an “automated, no-contact model.”
This trend is already showing up in the jobs data, with the recovery slower in industries that rely on public interaction, such as travel, leisure and hospitality. Those are jobs disproportionately held by women and people of color and typically pay lower wages, Powell noted.
This is essentially an "Amazon moment" but on steroids.
We saw the damage that online shopping did to the retail sector. It completely upended it. This damaged a lot more than just retailers. We see shopping mall owners in a dire situation. Tax revenues are also affected as is local employment.
Of course, all of this took place over the course of a decade. What we are seeing now is happening in under 2 years.
The challenge is that many of the people who are losing their jobs due to the transformation of the economy will have a tough time getting back into the work force.
“It may be that some of these people will have a harder time finding their way back into the workforce without more education and training,” he said. He said there are millions of people who have lost service sector jobs and remain out of work and need to be supported. “That’s a part of the recovery that’s far from complete.” he said.
Technological Unemployment
For years, I wrote about the concept of technological unemployment.
This is an idea that many people overlook. If you ask most people why they lost their job, few to none will say that they were replaced by technology. People simply do not view things that way.
However, if we analyze what is taking place, we see this is exactly what happened.
Anyone who was working for Blockbuster lost their job when the company went bankrupt. The leading video rental company went belly up. They ended up shutting down all their stores as the industry was dead.
If you ask anyone who was working for Blockbuster at the end, they will tell you they lost their job when the company went out of business. This is not exactly the case.
These people lost their job to technology. They became part of the technologically unemployed. The reason they lost their job is because Netflix enter the picture and took video distribution to the streaming level. It made Blockbuster obsolete.
We are seeing the same thing with services such as video conferencing. Organizations are finding they can handle most things via this technology, avoiding the face-to-face contacts. It also opens the door for greater competition among employees since companies can literally draw workers from anywhere.
Therefore, it only makes sense that vast sections of the economy are destroyed forever. This is what Powell was referring to. We see so much disruption taking place that the broader economy is affected.
I forecast that we will not see employment improve much going forward. The US Unemployment Rate might drop but that will be from people giving up looking for work (or they kick off because their benefits run out). Nevertheless, the total employment figure has likely peaked.
We are in a technological era. Thus, we are not going to see things return to the way they were in 2019. The global economy was permanently changed. Ironic that, since technology is making the shift possible, it was going to happen anyway. The pandemic simply provided the incentive for companies to embrace it.
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