US Economy Grows With 2.1% Productivity as Job Creation Nears Zero

For the past year, the U.S. economy has presented a puzzle: gross domestic product expanded, but job creation has nearly ground to a halt. The solution appears to be a timely revival in productivity, with output per hour rising 2.1% last year as the labor force simultaneously contracted.

"Zero job growth just doesn’t map into any kind of stability in terms of employment and whatnot," Federal Reserve governor Christopher Waller said at an economics conference in late February. "This would be the first time in my career, my life, that I saw an economy growing like this and zero job growth. I don’t even know quite how to think about this because I’ve never seen it before."

The divergence is stark. In the year through March, the labor force—people working or looking for a job—declined by 554,000, an event driven by immigration crackdowns and large-scale retirements. Job creation has flatlined at an average of just under 22,000 a month over the past year, the lowest outside a recession since 2003. This contrasts sharply with the 185,000 monthly jobs needed to keep pace with labor growth in the 1970s.

With labor-force growth slowing to a crawl, this new dynamic makes productivity the primary engine of economic expansion. Slower population growth and a plunge in net international migration—from a peak of 2.7 million in 2024 to an expected 321,000 this year—mean the U.S. can no longer rely on adding more workers to grow. "Productivity is no longer just one of the engines of growth—it’s close to the only engine left,” said Erik Brynjolfsson, director of the Stanford Digital Economy Lab.

Breakeven Rate Plunges Toward Zero

This demographic shift has drastically lowered the "breakeven rate," or the pace of job growth required to keep the unemployment rate stable. Economists now estimate the rate is below 50,000 jobs per month, down from about 170,000 just two years ago. A recent Federal Reserve paper suggested that with near-zero growth in the labor force, the breakeven pace could fall to less than 10,000 new jobs per month in 2026.

This new reality means the monthly jobs report is likely to continue its recent pattern of oscillating between small gains and losses. Since last May, the U.S. has bounced between job growth and job loss every month, adding a total of only 152,000 jobs over that period—an average of just 14,000 a month. "Employment growth in any given month is almost as likely to be negative as it is to be positive," Federal Reserve system researchers Seth Murray and Ivan Vidangos wrote.

AI and Automation: The Productivity Wildcard

The recent productivity acceleration, averaging 2.1% over the past six years compared to 1.5% from 2007 to 2019, is crucial. Economists say the Covid lockdowns and subsequent worker shortages forced many companies to speed up automation. While it is still too early to determine the full impact of artificial intelligence, some forecasters are building higher productivity into their long-term expectations. In March, Federal Reserve officials raised their long-term growth-rate estimate to 2% from 1.8%.

"When we look ahead to the labor market of one to five years from now, it's going to look quite different," said Nicole Bachaud, an economist at ZipRecruiter, noting that AI implementation is a major factor. "We need to start looking at what that measurement is going to be for success and for stability, because I don't think it's necessarily going to be the same way that we've measured in the past."

This article is for informational purposes only and does not constitute investment advice.