Jobless Recovery: U.S. Companies Are Spending to Upgrade Factories -- but Hiring Lags

From the Wall Street Journal online:

In no other U.S. recovery since World War II have companies been simultaneously faster to boost spending on machines and software, while slower to add people to run them.

Part of this is the old story of substituting capital for labor. But a combination of temporary tax breaks that allowed companies in 2011 to write off 100% of investments in the first year and historically low short- and long-term interest rates have pushed that process into overdrive.

Hiring, meanwhile, is too slow to bring the unemployment rate down rapidly. Employers have added workers at a monthly rate of 142,000 for the past six months, half the pace needed to significantly reduce unemployment, which is now at 8.5%.

Billy Cyr, chief executive of a Cincinnati-based beverage company, says he is buying new machinery partly because it is a bargain. 

"When the cost of capital goes up, it is harder to justify an equipment purchase and may, instead, result in higher employment using existing equipment," he says, such as by adding shifts or overtime for existing workers. 

Today, the opposite is happening.

Instead of hiring, companies such as Sunny Delight and chain-saw maker Stihl Holding AG are investing in technology or other ways to make existing operations faster and more productive.  

History suggests that investment that increases productivity eventually will create jobs and raise living standards. The mechanization of the farm and the automation of the factory both raised fears of permanent unemployment that were unrealized, as efficiencies in production of basic commodities created jobs in all sorts of services.

Most economists say today's surge in productivity will have the same beneficial effect—in the long run. In the short-term, however, this burst of efficiency allows companies to delay hiring....
-----------------
Link: http://online.wsj.com/article/SB10001424052970204468004577164710231081398.html?