Updated · Federal Reserve Bank of San Francisco · May 26
San Francisco Fed Sees No Clear U.S. Productivity Boom Yet as TFP Odds Sit at 21%
Updated
Updated · Federal Reserve Bank of San Francisco · May 26
San Francisco Fed Sees No Clear U.S. Productivity Boom Yet as TFP Odds Sit at 21%
1 articles · Updated · Federal Reserve Bank of San Francisco · May 26
Around 2.5% annual U.S. growth over the past three years came despite near-zero employment gains, but San Francisco Fed researchers said that still does not prove a lasting high-productivity era has begun.
Labor productivity has risen solidly while total factor productivity has grown only modestly, suggesting AI spending and data-center buildouts are improving workers' tools more than delivering economy-wide efficiency gains.
By late 2025, the Fed's regime model put the probability of a high-productivity regime at 57% using labor productivity and 21% using TFP—an increase, but not a decisive signal.
The researchers said the pattern resembles the mid-1990s, when labor productivity strengthened before broader gains became obvious, leaving room for cautious optimism that an AI-led boom could emerge only with hindsight.
We see AI's impact everywhere but in the stats. Is our economic radar broken, or is the productivity revolution a mirage?
Will AI's gains create widespread prosperity, or will they forge a new, more extreme class of corporate titans and deepen inequality?
AI is causing a 'hiring freeze' for new graduates. How can the next generation build careers when the first rung is gone?
Total Factor Productivity and AI in the U.S.: Navigating the Lag Between Innovation and Economy-Wide Gains
Overview
This report explores the recent trends in U.S. productivity, focusing on the differences between labor productivity and Total Factor Productivity (TFP). Labor productivity measures output per hour worked, showing how efficiently labor is used, while TFP captures the combined efficiency of both labor and capital, adjusting for changes in their quality and composition. Historically, TFP growth has slowed, despite periods of strong labor productivity. The report highlights that recent gains in labor productivity may be driven by factors like capital investment, rather than transformative technologies such as AI, whose full impact on overall efficiency and TFP is still anticipated in the future.