Are workers finally getting more productive?

The macroeconomic consensus has pinned its hopes on an artificial intelligence-driven productivity boom to deliver non-inflationary growth. Yet official first-quarter figures delivered a sobering reality check: non-farm business sector productivity grew at a sluggish annualized rate of 0.3 per cent, while unit labor costs accelerated to 4.7 per cent.

The Productivity Deficit

Generating durable disinflation without economic contraction requires authentic output-per-hour expansion. Instead, American businesses appear to be engaged in residual labor hoarding, maintaining bloated payrolls to guard against future hiring shortages. Without genuine productivity gains, high wage growth translates directly into elevated corporate operating costs, cementing inflation across the services economy.

Sluggish first-quarter productivity growth illustrates that the promised AI efficiency dividend has yet to manifest in the real economy, leaving unit labor costs uncomfortably elevated.