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There are three basic facts you need to know about the U.S. macroeconomy right now:
The economy overall (growth, employment, inflation) is doing pretty well.
Productivity growth is unusually high.
Job growth is terrible.
Let’s start with some numbers. Late 2025 is the latest number we have for GDP growth, but it looks pretty solid — around 2.5%, about where it was in the late 2010s.
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And most people still have jobs. Prime-age employment rates — my favorite single indicator of the labor market — are still really high. Higher than any time in the 2010s, actually:
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If you look at unemployment, you can see a slowly rising trend since mid-2023, even if you restrict it to the prime age group. But this is entirely due to more people saying that they’re looking for work — prime-age labor force participation has been steadily rising. So that’s not very scary either. It’s just more of the people without jobs saying that they’re looking for work, instead of just sitting around.
Meanwhile, inflation is still in the 2.5% range — a little higher than we would like, but not particularly fast.
So in terms of the headline numbers, everything is kind of just bumping along. From a bird’s-eye view, this economy looks pretty normal and healthy. Under normal circumstances, I’d be inclined to not even write a post about the macroeconomy this month.
But underneath the surface, two interesting things are happening. The first is that productivity growth has accelerated; the second is that job growth has stalled out. On its face, this sort of pattern might suggest that AI is finally starting to take Americans’ jobs — and lots of people are suggesting this conclusion. But when we look closely at the numbers, the story becomes more complicated.
Productivity is booming
The first is that productivity growth has accelerated. Output per hour — also called “labor productivity”, which is sort of a quick, rough-and-ready measure of productivity — is growing significantly faster than it was in the late 2010s. It’s been at around 2.5-3% since late 2023, compared to more like 1-2% during Trump’s first term:
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In fact, productivity is well above where economists thought it would be six years ago:
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