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Businesses buying more tech, not hiring more workers

Nancy Marshall-Genzer Jul 30, 2010

Businesses buying more tech, not hiring more workers

Nancy Marshall-Genzer Jul 30, 2010


Kai Ryssdal: The second quarter of 2010 in the American economy wasn’t all that bad. The Commerce Department told us that gross domestic product rose 2.4 percent April through June. A completely respectable number given the way housing’s been going, and more to the point, the way unemployment’s still going. And that brings us to this: Businesses were the big drivers behind the growth last quarter. Specifically, businesses buying lots of new equipment and computers. The idea is that all that new stuff is going to make workers more productive. So they won’t have to hire new workers.

From Washington, Marketplace’s Nancy Marshall Genzer has more.

Nancy Marshall Genzer: There’s evidence in today’s report of a big jump in corporate investment. Business spending on new equipment and software increased almost 22 percent in the second quarter. That’s the fastest rate in 12 years.

Nigel Gault is chief U.S. economist for IHS Global Insight. He says, CEOs are being cautious.

Nigel Gault: They see the cost of adding equipment now is less for them than the cost of adding a permanent worker.

After all, you don’t have to worry about health insurance or retirement plans for new computers. So, you throw new gear at your workers to make them more efficient. But…

Alan Levenson: That can’t go on forever. People can only move so fast.

Alan Levenson is chief economist at T. Rowe Price.

Levenson: And we really started to see that tipping point at the end of last year and beginning of this year.

Levenson says, when businesses reached that tipping point, where even the shiniest new gizmo couldn’t wring any more productivity out of their workers, they did start hiring. A little — although, we’re still a long way from making up the more than eight million jobs we lost during the recession. Now, you may be thinking – what about the companies that make the equipment and software other businesses are buying? Don’t they have to hire extra people? Yes, but not necessarily in the U.S.

Quincy Krosby is a market strategist at Prudential Financial.

Quincy Krosby: Of the hiring that is being done, there’s a higher percentage overseas.

But Krosby does expect U.S. hiring to pick up next year.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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