Productivity growth has been slower, with AI's impact yet to come

Productivity growth slowed down a bit in the first quarter of the year, increasing just 0.8%, according to the Bureau of Labor Statistics.

But looking at the same data year-on-year, productivity was a lot more robust at 2.9%. It’s just a snapshot of the engine of the U.S. economy at a time of massive investment in AI and massive productivity promises.

Trying to understand productivity using quarterly data is kind of like using a weather report to understand the climate, said Gerald Cohen, finance professor and chief economist of the University of North Carolina at Chapel Hill’s Kenan Institute of Private Enterprise.

“It’s hard to discern even trends with a few years of data,” he said.

Cohen said U.S. productivity isn’t as bad or as good as today’s quarter-on-quarter or year-on-year numbers say it is.

“But the fact that we continue to see stronger productivity growth… is suggestive of a pickup,” he said.

Cohen said annualized productivity growth since 2019 is around 2.1%. That’s better than the last decade or so, but he said it could be higher. So how much of today’s gains are coming from AI?

“The full story of AI-driven productivity is still a few years away from us,” said Yelena Shulyatyeva, senior U.S. economist with The Conference Board.

She said productivity growth today is more about automation coming out of the COVID-19 pandemic.

“Companies had to invest a lot into automation because labor was not available and it was so expensive,” Shulyatyeva said.

The restaurant sector is another that made gains because of the pandemic.

“It’s pretty much driven by DoorDash,” said Erika McEntarfer, policy fellow with the Stanford Institute for Economic Policy Research. “Lots of people developed DoorDash habits during the pandemic that they have not given up, and it has expanded the revenue potential for many restaurants.”

She said there’s also been a productivity boom in the gambling industry.

“It is now much easier to gamble on your phone, so that obviously means more profit for gambling companies. They are doing very well,” McEntarfer said.

While it’s too soon to extrapolate much about AI with this current productivity data, Seth Benzell, an assistant professor at Chapman University’s Argyros College of Business and Economics, said the relationship is likely there.

“In the medium and long term, the productivity story is about AI, it is about automation,” he said. “It is about increasing output with fewer workers.”

So when it comes to productivity gains, the robots are coming.