Productivity Jumps, Raising Hopes for an AI-Driven Payoff
New federal data show that U.S. labor productivity surged at a 4.9% annual rate in the third quarter, the fastest pace in two years and a key bright spot for the economy.[3] Economists say the jump likely reflects sustained investment in technology, including artificial intelligence, allowing companies to produce more with fewer workers.[3]
Unit labor costs fell 1.9% over the same period, suggesting businesses are not facing the kind of wage-driven cost pressures that typically fuel inflation.[3] Some analysts argue that if productivity growth continues at this stronger pace, the U.S. could sustain faster economic growth without triggering a renewed spike in prices.[3]
Matthew Martin, a senior economist at Oxford Economics, said higher productivity will be central to determining the economy’s “speed limit” and inflation dynamics going forward, especially as tax changes, deregulation, and AI adoption ripple through corporate balance sheets.[3]
Technology and Tariffs Push Firms Toward Automation
Business leaders and policymakers are watching closely how companies respond to lingering tariff-related cost pressures. Richmond Federal Reserve President Tom Barkin noted that many firms, reluctant to push higher prices onto consumers, are turning to automation and leaner hiring to offset the impact of tariffs.[3]
This shift reinforces a broader trend in which capital spending on software, robotics, and AI tools is substituting for some labor demand, particularly in sectors where margins are under strain.[3] While that dynamic can bolster productivity and profit margins, it also raises questions about how much job growth the current expansion can deliver.
Government Data Delays Complicate the Economic Picture
At the same time, the federal government is still working through disruptions to its regular economic data releases, complicating efforts to read the U.S. economy in real time. The Bureau of Economic Analysis (BEA) announced that its reports on personal income and consumer spending for October and November 2025 will now be combined and released on January 22, instead of in two separate November and December publications.[4]
Because the Bureau of Labor Statistics did not produce a full Consumer Price Index (CPI) for October, BEA will estimate some October inflation measures by averaging September and November CPI figures.[4] Those CPI data are critical for adjusting consumer spending for price changes and for calculating the closely watched Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge.[4]
BEA also pushed back the advance estimate of fourth-quarter and full-year 2025 GDP to February 20 and will issue the December personal income and outlays report on the same day.[4] Second estimates of fourth-quarter GDP and the January 2026 income and spending report are being rescheduled because the underlying source data will not be ready in time.[4]
Economists Weigh Growth Prospects for 2026
Despite the data disruptions, forecasters generally see the U.S. economy continuing to expand, though at a more moderate pace. The U.S. Chamber of Commerce projects that real GDP growth in 2026 could reach at least 2%, roughly in line with the average of private “Blue Chip” forecasts.[1] With supportive policies and continued productivity gains, the group argues growth could potentially edge closer to 3%.[1]
That outlook assumes inflation remains contained enough for the Federal Reserve to avoid tightening policy further while the labor market cools but does not collapse.[1] The Chamber notes that persistent inflation pressures and a slow-growing labor force leave the Fed cautious about moving too quickly in either direction on interest rates.[1]
Labor Market Signals a Narrower, More Uneven Expansion
Fresh labor-market indicators highlight underlying stress beneath headline economic strength. The latest Job Openings and Labor Turnover Survey (JOLTS) shows vacancies slipping to about 7.1 million in November, down sharply from October and nearly 900,000 lower than a year earlier.[2] Economists often treat JOLTS as a more reliable gauge than some private payroll estimates.[2]
Analysts describe the current phase as a “low-hire, low-fire” economy, where layoffs have not spiked but businesses are also pulling back on new hiring.[2] One of the few clear pockets of job growth has been education and health services, which added roughly 39,000 jobs in December, prompting warnings that the broader labor market is resting on a “one-legged stool.”[2]
Some forecasters at major banks suggest the hiring slowdown may be nearing a floor, with modest improvement possible if wage deceleration stabilizes.[2] Still, others expect private payroll growth to hover at a subdued pace—around 50,000 jobs per month—for much of 2026, underscoring how fragile the expansion could be if consumer confidence wavers.[2]
Vulnerabilities: Consumer Spending and Inequality Risks
Consumer spending, which makes up roughly two-thirds of U.S. economic activity, remains a critical variable. Economists warn that the current expansion leans heavily on higher-income households whose stock market and asset gains have helped sustain demand.[2] Any sharp market correction or negative shock affecting the top fifth of earners could quickly feed through to retail sales and services.[2]
Temporary supports—a wave of tax refunds and minimum wage increases across multiple states—may offer a brief boost to lower- and middle-income consumers early in the year.[2] But analysts caution those effects are likely to fade, leaving underlying wage growth and job creation as the main drivers of household purchasing power.[2]
Climate Policy Shift Draws Warning on Long-Term Economic Costs
On the policy front, the United Nations’ top climate official issued a stark warning that a U.S. pullback from international climate cooperation could hurt the long-term competitiveness and resilience of the American economy.[6] In a statement responding to the U.S. decision to withdraw from the U.N. climate framework, the official said the move risks higher costs for energy, food, transportation, and insurance as climate-related disasters intensify.[6]
The statement argued that as other major economies accelerate investment in clean energy and advanced manufacturing, a U.S. step back could mean missed opportunities for domestic jobs and export growth.[6] While the doors remain open for a future return to global climate accords, the UN stressed that the commercial opportunities in clean energy and climate resilience are already reshaping global economic competition.[6]
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