Fortunately, the answer is probably not, for two main reasons:
• Labor is getting more expensive, and quickly. Although it has been cheaper to hire than to invest, as wage growth picks up and workers become scarcer, investing in equipment becomes a better financial decision.
• Business investment is heavily correlated with business confidence, particularly in the industrial sector. Although that confidence has taken a real hit over the past 18 months or so, it has recently started to recover, suggesting that investment will likely begin to grow again as well. Further supporting this is the incipient recovery in oil and energy after the collapse of oil prices drove down investment in that sector.
Overall, it has been an almost perfect negative storm for productivity, driven by cheap labor, low business confidence, and a drop in investment due to a systemic change in the energy sector. Now, however, all of those trends are either moderating or reversing, which should give productivity a boost as well. One way to gauge that will be to see how business investment does over the next couple of quarters—something I'll be watching closely.
Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by McMillan.