We seem to be living in a weird world at the moment—one in which third-quarter real GDP growth is estimated to have increased by a stunning 3.9% (Atlanta Fed’s GDPNow tracker) after 3.8% in the previous quarter, we are in the midst of an AI-related energy and capex boom (with the hyperscalers seemingly in competition over who can spend the most each quarter), the stock market is soaring, and interest rates are low and expected to fall (a little) further. Yet, consumer confidence remains soggy, and job growth has likely been in the vicinity of a paltry 25,000 per month over the past quarter. In addition, and as if on cue, Amazon announced this week that it plans to lay off 14,000 workers from its corporate workforce in an attempt to lower costs and take advantage of increased AI capabilities. If this is the great productivity boom that we’ve all (at least most economists) been desperately waiting for years to arrive, Joe Public might be justified in asking, is this what we really signed up for?
In this Economics Weekly, Richard de Chazal looks at what is happening with the labor market, productivity growth, and the policy response to these changes.