Productivity Gains Fuel U.S. Growth While Hiring Slows

U.S. productivity surged at a 4.9% annual rate in the third quarter of 2025, the fastest pace in two years. This increase has raised hopes that automation and AI investments are beginning to yield tangible benefits for economic performance.

The productivity gains have been supported by companies using automation and scaling back hiring to offset cost pressures from President Donald Trump’s tariffs. This trend is notable as businesses appear reluctant to pass higher costs onto consumers.

Unit labor costs fell 1.9% in the third quarter, easing inflationary pressures and suggesting companies can maintain efficiency without raising prices.

Why Did Hiring Slow Down?

U.S. nonfarm payrolls increased by 50,000 in December 2025, in line with expectations, but below the 56,000 added in November. The unemployment rate dropped to 4.4% in December, a sign of labor market resilience.

Companies are increasingly relying on automation and flexible staffing models to manage costs. For example, ebm-papst Inc. is showcasing high-efficiency fans and compressors at AHR Expo 2026 that reduce energy consumption and support scalable cooling solutions for AI and high-performance computing.

How Did Markets React?

The labor market slowdown has shifted expectations for Federal Reserve rate cuts. Traders revised the probability of a January rate cut downward to 3.9% after the December payrolls report.

Goldman Sachs and other major banks have pushed back their rate cut forecasts. Goldman now expects cuts in June and September 2026, while some analysts suggest rate hikes may be necessary later in 2027.

Inflation remains a key concern. While overall inflation has moderated to 2.7% year-over-year in December 2025, goods prices continue to rise at an accelerating pace, with imported goods up 6% and domestic goods up 4.3% from pre-tariff trends.

What Are Analysts Watching Next?

Economic growth is expected to remain supported by AI-related infrastructure investment and policy measures. Deloitte noted that executive actions in 2025 expanded federal land access and eased regulations, with continued support projected for 2026.

The U.S. economy is forecast to grow at 2.0% in 2026, according to a United Nations report, aided by expansionary fiscal and monetary policies. Meanwhile, global energy demand is rising due to increased electrification and data center growth, supporting U.S. LNG export companies like Expand Energy.

Despite the slow hiring trend, the healthcare sector continues to add jobs. In December, hospitals added 16,300 jobs, while the broader healthcare industry added 21,100 jobs, reflecting ongoing demand for healthcare professionals.

However, the healthcare staffing market faces challenges, including labor shortages and rising costs. The market is expected to grow to $89.12 billion by 2032, but staffing firms must navigate regulatory hurdles and a shortage of qualified professionals.

Conclusion

The U.S. economy appears to be balancing high productivity with a slower labor market. While companies are leveraging automation and efficiency gains to sustain growth, hiring remains subdued. The Federal Reserve is likely to remain cautious on rate cuts, allowing more time for inflation to move closer to its target. As businesses adapt to new economic realities, the healthcare and energy sectors show divergent hiring patterns, reflecting the broader complexity of the U.S. labor market.