(What’s Left of) Our Economy: New Official Data Make that AI-Driven Productivity Boom Story Look Stronger
Notice what's missing.
When I last looked at America’s official labor productivity figures (for the preliminary third quarter, 2025 numbers), I didn’t see much evidence of a significant boom in this measure of efficiency driven by artificial intelligence (AI) and other technological advances.
Today – with the release of the advance fourth quarter figures, which incorporate new information from the Labor Department’s latest benchmark revisions – the story looks different. Moreover, it pours yet more cold water on the widespread view that the Trump 2.0 tariffs are harming the health of U.S.-based manufacturing.
According to the Labor Department, in the fourth quarter, the headline labor productivity increase (for non-farm businesses) was 2.8 percent annual rate. That was a slowdown from the final 5.2 percent third quarter rise. But aside from the labor productivity explosion of 2020 that was wildly distorted by the pandemic, that improvement was the best such performance since the 5.5 percent reported for the fourth quarter of 2009.
At the same time, that fourth quarter result came near the beginning of an economic expansion that followed the worst U.S. economic slump since the Great Depression. This latest fourth quarter result is coming while the economy is still growing nicely.
In addition, the new data created a full 2025 gain (again, preliminarily) of 3.03 percent. That was a major speedup from 2024’s 2.19 percent and the strongest advance (excepting covid-y 2020) since 2009’s 5.34 percent (which of course also at least partly reflected a post-recession bounceback, unlike the 2025 increase). As I see it, that strengthens the credibility of the AI-fueled productivity boom story.
Manufacturing’s labor productivity performance wasn’t anywhere near as good. Indeed, today’s preliminary report showed a 1.9 percent sequential drop at annual rates for the fourth quarter. That was industry’s worst such result since the 2.8 percent decrease in the fourth quarter of 2022.
Nonetheless, even with that fourth quarter retreat, manufacturing labor productivity for full year 2025 was up by 1.18 percent. That’s ten times faster than the 0.11 percent bump of 2024 – which should help put the kibosh on claims that the Trump tariffs have been “crushing” the factory sector – as most recently maintained by this New York Times article.
Indeed, such claims look even weaker upon examining the labor productivity trends for durable goods manufacturing – where most of the Trump 2.0 tariffs have been concentrated.
Today’s Labor Department release does report preliminarily that labor productivity in this manufacturing sub-sector shrank by three percent at annual rates – a bit faster than the overall manufacturing deterioration.
But for full year 2025, the advance release reported that durable goods manufacturing labor productivity rose by 1.72 percent. In pre-tariff-y 2024, it dipped by 0.63 percent. Further, other than the covid year 2020, the 2025 improvement was the strongest since 2010’s 3.22 percent. And that surge, too, came in the early stages of an expansion following a major recession.
Still, I’m not yet ready to endorse the AI-driven productivity boom …
Notice what's missing.
When I last looked at America’s official labor productivity figures (for the preliminary third quarter, 2025 numbers), I didn’t see much evidence of a significant boom in this measure of efficiency driven by artificial intelligence (AI) and other technological advances.
Today – with the release of the advance fourth quarter figures, which incorporate new information from the Labor Department’s latest benchmark revisions – the story looks different. Moreover, it pours yet more cold water on the widespread view that the Trump 2.0 tariffs are harming the health of U.S.-based manufacturing.
According to the Labor Department, in the fourth quarter, the headline labor productivity increase (for non-farm businesses) was 2.8 percent annual rate. That was a slowdown from the final 5.2 percent third quarter rise. But aside from the labor productivity explosion of 2020 that was wildly distorted by the pandemic, that improvement was the best such performance since the 5.5 percent reported for the fourth quarter of 2009.
At the same time, that fourth quarter result came near the beginning of an economic expansion that followed the worst U.S. economic slump since the Great Depression. This latest fourth quarter result is coming while the economy is still growing nicely.
In addition, the new data created a full 2025 gain (again, preliminarily) of 3.03 percent. That was a major speedup from 2024’s 2.19 percent and the strongest advance (excepting covid-y 2020) since 2009’s 5.34 percent (which of course also at least partly reflected a post-recession bounceback, unlike the 2025 increase). As I see it, that strengthens the credibility of the AI-fueled productivity boom story.
Manufacturing’s labor productivity performance wasn’t anywhere near as good. Indeed, today’s preliminary report showed a 1.9 percent sequential drop at annual rates for the fourth quarter. That was industry’s worst such result since the 2.8 percent decrease in the fourth quarter of 2022.
Nonetheless, even with that fourth quarter retreat, manufacturing labor productivity for full year 2025 was up by 1.18 percent. That’s ten times faster than the 0.11 percent bump of 2024 – which should help put the kibosh on claims that the Trump tariffs have been “crushing” the factory sector – as most recently maintained by this New York Times article.
Indeed, such claims look even weaker upon examining the labor productivity trends for durable goods manufacturing – where most of the Trump 2.0 tariffs have been concentrated.
Today’s Labor Department release does report preliminarily that labor productivity in this manufacturing sub-sector shrank by three percent at annual rates – a bit faster than the overall manufacturing deterioration.
But for full year 2025, the advance release reported that durable goods manufacturing labor productivity rose by 1.72 percent. In pre-tariff-y 2024, it dipped by 0.63 percent. Further, other than the covid year 2020, the 2025 improvement was the strongest since 2010’s 3.22 percent. And that surge, too, came in the early stages of an expansion following a major recession.
Still, I’m not yet ready to endorse the AI-driven productivity boom …
(What’s Left of) Our Economy: New Official Data Make that AI-Driven Productivity Boom Story Look Stronger
Notice what's missing.
When I last looked at America’s official labor productivity figures (for the preliminary third quarter, 2025 numbers), I didn’t see much evidence of a significant boom in this measure of efficiency driven by artificial intelligence (AI) and other technological advances.
Today – with the release of the advance fourth quarter figures, which incorporate new information from the Labor Department’s latest benchmark revisions – the story looks different. Moreover, it pours yet more cold water on the widespread view that the Trump 2.0 tariffs are harming the health of U.S.-based manufacturing.
According to the Labor Department, in the fourth quarter, the headline labor productivity increase (for non-farm businesses) was 2.8 percent annual rate. That was a slowdown from the final 5.2 percent third quarter rise. But aside from the labor productivity explosion of 2020 that was wildly distorted by the pandemic, that improvement was the best such performance since the 5.5 percent reported for the fourth quarter of 2009.
At the same time, that fourth quarter result came near the beginning of an economic expansion that followed the worst U.S. economic slump since the Great Depression. This latest fourth quarter result is coming while the economy is still growing nicely.
In addition, the new data created a full 2025 gain (again, preliminarily) of 3.03 percent. That was a major speedup from 2024’s 2.19 percent and the strongest advance (excepting covid-y 2020) since 2009’s 5.34 percent (which of course also at least partly reflected a post-recession bounceback, unlike the 2025 increase). As I see it, that strengthens the credibility of the AI-fueled productivity boom story.
Manufacturing’s labor productivity performance wasn’t anywhere near as good. Indeed, today’s preliminary report showed a 1.9 percent sequential drop at annual rates for the fourth quarter. That was industry’s worst such result since the 2.8 percent decrease in the fourth quarter of 2022.
Nonetheless, even with that fourth quarter retreat, manufacturing labor productivity for full year 2025 was up by 1.18 percent. That’s ten times faster than the 0.11 percent bump of 2024 – which should help put the kibosh on claims that the Trump tariffs have been “crushing” the factory sector – as most recently maintained by this New York Times article.
Indeed, such claims look even weaker upon examining the labor productivity trends for durable goods manufacturing – where most of the Trump 2.0 tariffs have been concentrated.
Today’s Labor Department release does report preliminarily that labor productivity in this manufacturing sub-sector shrank by three percent at annual rates – a bit faster than the overall manufacturing deterioration.
But for full year 2025, the advance release reported that durable goods manufacturing labor productivity rose by 1.72 percent. In pre-tariff-y 2024, it dipped by 0.63 percent. Further, other than the covid year 2020, the 2025 improvement was the strongest since 2010’s 3.22 percent. And that surge, too, came in the early stages of an expansion following a major recession.
Still, I’m not yet ready to endorse the AI-driven productivity boom …
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