Where Are The Jobs?

A recent article in the Wall Street Journal suggested that some of the relatively weak recovery in jobs can be attributed to low interest rates and their affect on corporate investment decisions.  While it is true that many companies are currently flush with cash and very low interest rates further encourage capital investment to increase output and margins, real progress in long-term job creation will require an increase in demand.

Businesses have historically tended to seek productivity gains through the judicious use of capital investment, thereby substituting technology for labor.  This is not always a one way street.  As noted in a December 2013 blog “Minimum Wages: A True Story”, when capital investment (in the form of an imported, heavily taxed backhoe) proved to be too expensive, a contractor chose to go with the old fashioned pick and shovel approach to ditch digging.

Increasing revenues, productivity and margins have always been business objectives and choosing between capital and labor is not a new concept.  The real issue for investors is long-term growth.  A vibrant economy, with increasing demand, is going to be positive for labor, even though continuing investment in technology is likely to remain a key corporate strategy.

The current relatively low interest rate environment and talk of raising the minimum wage may have some negative impact on job growth, on the margin, but the real key to a strong job market and higher wages, is a vibrant economy.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA