As reported in Axios, A top Fed official attributes the surge in economic output in 2023 to companies adopting labor-saving strategies due to the tight job market. The question for 2024 is whether the improvement in labor productivity will continue. The gains may have room to run if the assessment is correct. The increase in productivity is attributed to sector reallocation and increased productivity within industries and firms. Artificial intelligence is seen as a potential future source of productivity. It is too early to determine the exact reasons behind the surge, but it is likely real.
A new paper suggests that the U.S. is better positioned than continental Europe to benefit from widespread AI adoption, potentially leading to a widening divide in innovation and economic outcomes. The paper highlights the U.S.’s lead in AI-related innovations and its higher historical rate of job transitions. In contrast, Europe has been more cautious in adopting technological innovations. The paper estimates that both regions will need millions of people to transition to different types of jobs in the next few years.
Tech chiefs are facing the challenge of shadow IT driven by the adoption of generative AI tools. Companies have observed an increase in employees using off-the-books generative AI tools, leading to the need for clear tech procurement policies and robust vetting processes. While major tech providers work on responsible AI guidelines, CIOs must consider adoption costs, AI training, and the chaotic vendor landscape. A level of risk tolerance is necessary in the adoption process.
“Shrinkflation,” a strategy where businesses offer smaller sizes or quantities of goods and services at the same price, is being used by about 12% of small businesses to combat rising costs. However, consumers are noticing and are not happy about it, with 68% switching brands or companies because of it. Small businesses should consider other strategies like careful budgeting or raising prices slightly, and if using shrinkflation, being upfront with customers may help retain loyalty.
Affluent Americans are benefiting from soaring prices for stocks and houses, while lower-income Americans are facing challenges with credit card debt, high rents, and slower wage growth. This divide in economic conditions impacts sentiment about the economy and is a concern for Federal Reserve officials. Delinquency rates for credit cards have increased, particularly among maxed-out borrowers. Public opinion data also shows a shift in sentiment, with low-income households becoming more pessimistic about the economy compared to higher-earning counterparts.
Why do we care?
Here’s where things are less optimistic. The labor market itself is tight… with growing productivity. The US looks better positioned than Europe, and all that AI is also causing a lot of shadow IT as it boosts productivity. Consumers themselves are pushing back against organizations, and there will be a distinct difference in spending depending on the customer base. This data is what you use to understand your customer’s perspective.
