The great productivity boom is about to take a break

THE great productivity boom of the 2020s isn’t over, but it’s having an interlude. And it could become a long one if US President Donald Trump remains committed to protectionist policies that make the economy less efficient. Ultimately, artificial intelligence will help, but it may take a while.

After an impressive streak in the past two years, labour productivity – or non-farm employee output per hour – declined at a 0.8 per cent annualised rate in the first quarter, the first such decline since 2022. For all the caveats about Thursday (May 8)’s statistic (the quarter-to-quarter data is notoriously noisy), it’s sure to burst the bubbles of fellow productivity bulls, who hoped it could sustain economic growth even as reduced immigration slows the expansion of the labour force.

Productivity growth is the magic pixie dust behind great economies. It can produce economic booms while also keeping a lid on inflation, lifting the fortunes of workers and business owners alike. For much of the post-financial crisis period, labour productivity grew at a frustratingly lacklustre pace of around 1.5 per cent annually, but something extraordinary happened in recent years. Four of the past five years saw labour productivity growth above that level, including the fantastic 2.8 per cent increase of 2024. And the boost helped the economy to stay afloat even as the Federal Reserve raised policy rates to rein in inflation.