Automation gives jobs, but also takes them away

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The recession of 2007-08, and the glacially slow, still ongoing recovery since, prompt the question: When will the jobs return?

The answer — that many of them won’t — is a painful one for all of us. Job creation had been ebbing for years before the recession and, in the coming years, is likely to fall far short of numbers for previous decades. A key reason is low consumer demand. Companies have no reason to hire if people aren’t buying their products, and recession-wracked Europe, our biggest consumer, isn’t consuming as much.

Another reason for weak job creation isn’t talked about as much. Automation, aided by new technologies, is increasingly replacing labor, changing workplaces and altering the economy in fundamental ways. Just look around your house, your office (if you’re fortunate enough to have one) and the nearest shopping center.

IPhones, iPads, and other devices are changing the way we shop, communicate and obtain news and information, disrupting old labor-intensive industries like newspapers and the Postal Service, creating new ones that generally employ far fewer people.

Online banking, brokerage and mortgages are making it easier for consumers never to set foot in a bricks-and-mortar location.

Movie-downloading services have hastened the demise of video stores.

Self-checkout aisles at stores and gas stations have eliminated thousands of retail jobs.

As technology evolves, new jobs are created, but not fast enough to replace the ones that are disappearing. This is creating hardship for millions of Americans. Over time, the same technological advances that are creating jobs will consume more and more of them.

“At some point in the future — it might be many years or decades from now — machines will be able to do the jobs of a large percentage of the ‘average’ people in our population, and these people will not be able to find new jobs,” writes Martin Ford in his eye-opening book, Lights in the Tunnel. Ford details the challenges we face and offers possible solutions including shorter work weeks, job sharing, and eliminating payroll taxes so employers are less incentivized to replace workers.

While government officials should worry about how to create more good-paying jobs, investors who have suffered from a sideways stock market can profit by seeking out companies on the leading edge of automation.

Examples include Rockwell Automation, which makes industrial systems; IRobot, a maker of automated tools such as vacuum cleaners and floor washers; AeroVironoment, which manufactures unmanned aircraft and other vehicles, and NCR, a great example of an old-line firm that morphed from mechanical cash registers to ATMs and automated check-in systems.

Another investing approach is to look for stocks with high sales to employees. A recent Bloomberg survey calls attention to some companies with high sales-to-employee ratios. Among them: Apple, eBay, Microsoft, Amgen and Google.

Every industrial revolution has been accompanied by new technology that underpins the innovations, and that is fertile ground for investors seeking growth. Microchips, computer storage, optical drives, LCDs, fiber optics and nanotechnology are just a few innovations driving the new economy.

The good news is that the U.S. has enormous capacity to supply needed goods and services (with less labor than ever, meaning higher productivity). Jobs are being replaced, to be sure. However, innovators in the global and U.S. economies will doubtless find new ways to make money.

Whatever the future holds along these lines, investing in old-line, labor-intensive firms seems to be an increasingly bad bet. Such companies tend to be mature, which typically means low growth potential and low investment returns.

By focusing on high-revenue companies that harness automation, you’ll be looking to the future. And after all, investing is all about the future.

Yet it’s important to remember that the future never unfolds as neatly as seers predict — even when they’re basically right. The key is to keep abreast of economic developments to see new niches of investing opportunity developing from the automation trend.

On a brighter economic note, this investment will spur general economic growth that, for all we now know, could ultimately produce new jobs in areas of which we now have no conception.

Ted Schwartz, a Certified Financial Planner, is president and chief investment officer of Capstone Investment Financial Group. He advises individual investors and endowments, and serves as the advisor to CIFG UMA accounts. Because Schwartz has a background in psychology and counseling, he brings insights into personal motivation when advising clients on achieving their wealth management goals. He can be reached at ted@capstoneinvest.com.