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In today’s newsletter, we look at signs American productivity may take off, the rise of the second-hand economy and what Goldman Sachs thinks about interest rates.

Working Smarter  

Covid-19 has killed more than 750,000 Americans and left millions more out of work. But something else has been happening, too: the shock has forced companies everywhere to try doing things differently in the pandemic economy — and that’s been spurring innovation.

Productivity is an elusive yet critical gauge of how labor and capital combine to produce more. It’s been volatile in recent quarters, but there’s plenty of data and anecdotes that are pointing to a deepening use of technology across a range of businesses, allowing them to scale up without much added cost, Craig Torres reports
here.

And when productivity accelerates, economies can grow at a decent clip even when populations don’t. And employment and pay can rise without triggering inflation.

New equipment is one route to enabling workers to lift output. But new forms of corporate organization can achieve the same effect. Jason Thomas, head of global research at Carlyle Group, calls it breaking “path dependency” — the tendency to do things a certain way because they’ve always been done that way.

Much innovation, especially in service industries, has stemmed from the need to meet the demands of customers while protecting them from infection risk:

• Think of the yoga studio that went mostly virtual. It required investment in technology — software, cameras, microphones and large screens. Once all of that was in place, the number of people who could drop in for a class was no longer limited by the studio’s size. 
• Or take Kyocera SGS Tech Hub, a maker of sophisticated cutting tools in Danville, Virginia. Workers there have adjusted shifts to reduce contact. But Jason Wells, its president, says the biggest change is the way the pandemic increased communication — putting employees in closer contact with each other and with suppliers, which helped them solve problems faster.

At Carlyle, Thomas gets a firsthand look at dynamics like these by peering into the 267 companies in the private-equity group’s portfolio. Revenue per worker has increased more than 12% and operating margins are up 24% from before the pandemic, he says.

Technological adaptation is never instant or smooth, and the question of whether the pandemic boosted productivity won’t be answered for a long while. But potentially seismic shifts could be under way across the business world as companies reconfigure how they organize themselves.

—Chris Anstey

The Economic Scene

Supply-chain snarls have changed the economics of second-hand goods as scarcity drives up their value. In Ireland, for example, Brexit disrupted the regular flow of used cars from the U.K., and there are few alternatives for right-hand vehicles in Europe. That means the owner of a Volkswagen Golf there could sell that car for an average of 15% more today than it was purchased for a year ago — and that’s with an extra 20,000 kilometers (12,427 miles) on the odometer.  Read more
here.

Today’s Must Reads

• Fed musical chairs | Federal Reserve Governor Lael Brainard was interviewed for the top job at the central bank last week, while President Joe Biden got another seat to fill with the resignation of Governor Randal Quarles. 
• Fed warning | The Fed is warning that prices of risky assets keep rising, making them more susceptible to perilous plunges if the economy takes a turn for the worse, and cited stablecoins as an emerging threat.   
• Going green | China’s central bank will offer cheap funding to banks which lend to firms that are working toward the nation’s goal of reducing carbon emissions.
• China prices | Prices Chinese companies charge for their output likely rose at the fastest pace in more than two decades last month, driven by the commodity boom, an energy crunch, Covid and bad weather. 
• Semiconductors | Every major semiconductor company has pledged to comply with a U.S. request for information pertaining to the global chip shortage, Commerce Secretary Gina Raimondo told Bloomberg. 
• Japan wages | Wages eked out meager gains in September, the latest indication of a weak pay trend that Prime Minister Fumio Kishida has vowed to strengthen via an upcoming stimulus package.
• QE architect turns critic | Charlie Bean, a deputy governor at the Bank of England when quantitative easing started in 2009, said the policy adds to inequalities and “should be a less significant part of the landscape.”

Need-to-Know Research

The era of rock-bottom interest rates may be drawing to a close, courtesy of a stronger-than-expected surge in inflation and massive government spending,
according to economists at Goldman Sachs Group Inc. 

Although the aftermath of the 2008 collapse of Lehman Brothers was characterized by persistently weak price pressures and negative monetary policy, Jan Hatzius and colleagues reckon decisions by the Federal Reserve and European Central Bank to adopt new frameworks, investments to combat climate change and higher household savings will likely change that.

Goldman said its analysis suggested the neutral rate of interest — the policy setting at which growth is neither stimulated nor constricted, dubbed R* for short — could get a 50 basis-point boost relative to the years following the global financial crisis. 

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The fourth annual Bloomberg New Economy Forum will convene the world’s most influential leaders in Singapore on Nov. 16-19 to mobilize behind the effort to build a sustainable and inclusive global economy. Learn more here.