U.S. Productivity is Up Sharply Over Two Quarters, But AI is Not the Reason

Economies are extraordinarily intricate machines, which explains the humorous references to “one-handed economists” (“on the one hand, on the other hand”). 

So we probably should not be surprised that U.S. data reveals a possibly-unexpected boost to nonfarm productivity growth at an annualized rate of 4.9 percent, a second consecutive quarter of gains, nor that we aren’t sure what caused the change. 

Morgan Stanley chief economist Michael Gapen said “it remains an open question as to what is driving the productivity acceleration.”

Some will undoubtedly want to point to the impact of artificial intelligence. Some of us likely doubt that. It seems unlikely we can measure such impact, so soon, and, in any case, there are other likely drivers. 

Many would note the U.S. labor market has been in a “low-hire-low-fire” mode for much of 2025.

When companies maintain or increase their output while hiring fewer workers, the mathematical result is a jump in productivity, while a “K-shaped economy” that has wealthier households propping up aggregate spending that less-wealthy households might be trimming, also is at work. 

And some will suggest that slower hiring now is a reaction to a period of over-hiring that happened after the Covid pandemic. 

The Great Resignation (or Big Quit) was a massive, pandemic-era trend starting in 2021 where millions of U.S. workers voluntarily quit their jobs, driven by burnout, low wages, poor benefits, and a desire for flexibility (especially remote work).

The Great Resignation began in early 2021, peaking with record quit rates around 4.5 million people in late 2021, according to the Bureau of Labor Statistics. 

The hiring pattern after the Great Resignation shifted to what some call the "Great Reshuffling," where workers didn't just leave but moved to better roles, demanding higher pay, flexibility (remote/hybrid), improved benefits, and better work-life balance, forcing companies to focus on employee retention, culture, and creating more attractive, purpose-driven environments to compete for talent.

The net result was a big wave of hiring where employers arguably “over-hired.”

The point is that AI probably does not explain the change. Businesses have not deployed widely enough, for long enough, in high-leverage use cases, to explain such a change. 

Some economists suggest AI could raise productivity around an extra 0.01 to 0.3 percentage points, with the primary effect so far being an indirect boost to overall gross domestic product growth through heavy investment in AI infrastructure itself. 

Over a decade or so, economists at Goldman Sachs suggest AI could boost productivity growth by between 0.3 and 3.0 percentage points a year over the decade following its widespread adoption, with a median estimate of 1.5 percentage points.

But that is not a reality, yet. So, no, AI does not explain the recent upsurge in productivity.