The mystery of productivity

Productivity is emerging as the key driver of growth, with 2025 GDP surprising to the upside despite constrained labor supply and tighter immigration, implying a powerful but early-stage productivity surge. Unlike past cycles led by broad-based physical capex, today’s investment boom is centered on AI data centers whose economic impact flows less through direct job creation and more through potential downstream efficiency gains.

If these gains translate into higher wages, stronger consumption and a revival in cyclical sectors like housing and autos, investors could see a virtuous cycle of rising productivity, employment and fiscal improvement. The risk is that AI spending proves more speculative than transformative, echoing prior episodes of malinvestment where capital outlays failed to deliver durable output or earnings growth.

For advisors and investors, the core question is whether this AI-led cycle evolves into broad-based prosperity or remains a narrow productivity story with uneven benefits across workers, sectors and portfolios.