Something feels weird about this economy

The U.S. macroeconomy looks fairly normal on the surface, with solid GDP growth, high prime-age employment, and inflation still near 2.5%. The unusual part is underneath that surface, where productivity has accelerated and job growth has stalled.

Reading notes

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• Headline indicators are still broadly healthy, with GDP growth around 2.5%, prime-age employment high, and inflation near 2.5%.
• Unemployment has edged up since mid-2023, but the rise comes from more people saying they are looking for work, while prime-age labor force participation has kept rising.
• Output per hour has been growing around 2.5-3% since late 2023, faster than in the late 2010s and above what economists expected six years ago.
• The productivity jump may be tied more to manufacturing and the buildout of data centers than to white-collar AI use at work.
• The value of computers inside data centers and related equipment is contributing to GDP growth at a scale comparable to the dot-com boom.
• Faster productivity also lines up with more intensive use of capital, such as machines running longer and buildings staying lit for more hours.
• San Francisco Fed estimates suggest TFP growth was strong in 2023-24 but faded in 2025 once utilization is taken into account.