“Oil and Gas Extraction Booming,” reports the headline on yesterday’s U.S. Government Census Bureau 2012 Economic Census Advance Report (which covers 2007 – 2012). While the news about “fracking” is true, the headline’s emphasis on job growth in the fossil fuel industry over the past five years is somewhat misleading. Even the text of the press release chooses to crow about fracking jobs. However, we have analyzed the raw data tables that accompany the report and believe there are other trends that are much more informative and important to understand.
The big picture is that companies within many industries are replacing people with technology, so while the overall economy is growing, it is employing fewer people. Also, jobs with above-average pay are disappearing and the jobs being created offer below-average wages.
For example, the U.S. manufacturing sector lost 2.1 million jobs even as its sales increased $436 billion. These job losses more than eclipse the 173,000 jobs added in oil and gas extraction. Other sectors beyond manufacturing reported similar trends: wholesale and retail trade, transportation, information, finance, and real estate all lost jobs. Overall, our economy lost at least 1.3 million jobs during the period, even as total sales grew by 8.7%.
The sectors that are adding jobs tend to be low wage and some present hazardous working conditions, such as mining or oil and gas extraction. Other sectors reporting job growth include the low paying portion of the healthcare sector, the hotel and food service sector, and the low end of education. The Government’s darling, fracking, came in fourth in number of jobs added.
To assist our analysis of the report, we took the raw data presented, did some basic math, and created the following table. You will note that the formerly giant construction industry has not been included in this report. Once it is updated, Portfolio 21 believes that overall jobs lost will increase.
A very important message to glean from this data is that companies across many sectors have figured out how to do more business while employing fewer workers. This has been going on for many years in the manufacturing sector and it is now becoming a factor in several other sectors. There is no reason that this trend, which is enabled by technology, will not continue and spread to virtually every sector. The information sector and the finance sector, bastions of good paying white collar jobs are already showing the early signs of being impacted by this trend.
These are massive shifts in terms of how our economy works. People and companies that control the intellectual and financial capital to produce and utilize the technology that literally replaces the human workforce have substantial control and reap large financial rewards.
Unfortunately, the number of people in such a position of control is relatively few compared to the total population. We already see the impact of this condition in the much discussed income inequality that impacts the entire world.
Everything about the data just released indicate that the trends that have led us to this point are structural, will continue, and perhaps accelerate.
Investors can navigate these trends by selecting the companies that produce, own, and make expert use of the latest technologies. Our social systems are another story and are being outrun by advancing technology. The little guy is no longer in danger of being replaced by an overseas worker, he is in danger of being run over by the robot that took over the jobs of 100 skilled people at the manufacturing plant.
This is where our economy is headed, and has been for several years. We can now see that these trends were significant factors during the country’s “recovery” from the financial crisis. It makes perfect sense, business owners got access to extremely cheap capital from the U.S. Federal Reserve and used that money to replace workers with technology. This structure, of course, favored larger companies, which is revealed in the data by the drop in the number of business establishments during the period.
It’s a tough picture for any government anywhere in the world to describe: the economy is growing, employing fewer workers, and experiencing a decline in the number of businesses. The new jobs that are being created generally do not pay very well and may involve hazardous working conditions. This is the stuff of income inequality and must be extremely tough for a Democratic administration to discuss. Hence the emphasis on the “Oil and Gas Boom” in the headline. However, we think that it is more important to discuss the facts associated with an economy that is growing and employing fewer people than it is to cheerlead job growth in the fracking industry.
There is some good news here: the scientific and technical services sector created 272,000 good paying jobs. And the economy is becoming more efficient in terms of not just how many people it takes to produce a unit of output, but undoubtedly in terms of overall resource utilization. These are potentially positive trends, but our social systems need to advance as quickly as the technology driven employment trends.
We all need to understand these trends, for purposes as diverse as advising kids on educational and career strategies, crafting public policy for the large part of the population not able to access attractive employment, or in our case, to inform the process of managing investment portfolios.
John Streur is President of Portfolio 21. He has 25 years of experience in the field of investment management.