The Productivity Boom Is Real, but Narrow

The productivity chart tells a more subtle story than a simple technology boom. Aggregate productivity growth has accelerated from roughly 1.2% in 2013–2019 to about 2.25% in 2022–2025, but the improvement is not evenly distributed across the economy. Information, professional and business services, and retail trade explain a large share of the acceleration, while the reallocation effect has turned materially negative. The economy is becoming more productive, but it is doing so through within-sector efficiency gains rather than broad diffusion of productivity across the labor base.

A Stronger Supply Side With a Narrower Engine

The decomposition is the key. In 2022–2025, information contributes about 0.62 percentage points, retail trade about 0.59 percentage points, professional and business services about 0.53 percentage points, financial activities about 0.24 percentage points, and advanced manufacturing about 0.16 percentage points. The rest of the economy contributes only about 0.29 percentage points. Meanwhile, reallocation subtracts roughly 0.31 percentage points.

Component	2013–2019 contribution	2022–2025 contribution	Interpretation
Information	~0.44 pp	~0.62 pp	software, data infrastructure, and AI-enabled workflows compound
Professional and business services	~0.32 pp	~0.53 pp	scalable knowledge work becomes more output-intensive
Retail trade	~0.32 pp	~0.59 pp	logistics, inventory systems, and platform discipline improve throughput
Financial activities	modest	~0.24 pp	automation supports middle- and back-office leverage
Advanced manufacturing	modest	~0.16 pp	capital deepening helps, but sector weight limits aggregate impact
Reallocation effect	~-0.19 pp	~-0.31 pp	labor keeps moving toward lower-productivity activities

The table shows why the headline productivity improvement can be both real and fragile. The leading sectors are compounding efficiency, but the aggregate labor market is still shifting toward activities where output per hour is harder to scale.

The Growth Accounting Message Is Within-Sector Adoption

In a shift-share framework, aggregate productivity growth can be written schematically as:

`ΔP = Σ_i s_i Δp_i + Σ_i Δs_i (p_i - P)`

The first term is the within-sector effect: each industry becomes more productive at its current weight. The second is the reallocation effect: labor and output shares move toward sectors that are above or below aggregate productivity. The chart's message is that the first term has improved substantially, while the second term is now a drag.

That distinction matters because within-sector gains are technologically powerful but distributionally uneven. Software, automation, machine learning, and better process design can raise output per hour in information services, professional services, retail logistics, finance, and advanced manufacturing. But if incremental employment flows into healthcare, education, and other labor-intensive services where tasks are harder to automate or scale, aggregate productivity does not fully inherit the frontier sectors' efficiency.

Retail Trade Is the Quiet Macro Surprise

Retail's contribution is especially important because it challenges the idea that recent productivity strength is only a narrow software-sector story. A 0.59 percentage point contribution from retail trade points to operational efficiency: inventory algorithms, warehouse automation, last-mile routing, dynamic pricing, self-checkout, omnichannel fulfillment, and tighter working-capital discipline. Retail is low margin, so small process gains can have large productivity effects.

A numerical example helps. Suppose a retailer raises units processed per labor hour by 8% through better routing and inventory placement, while nominal wages rise 4%. If pricing power is limited, that productivity improvement can protect margins without requiring equivalent consumer price increases. At scale, the macro result is a supply-side improvement that can coexist with moderate employment growth and lower unit labor cost pressure.

Why Reallocation Is Negative Despite Better Technology

The negative reallocation term is not a statistical footnote. It is a structural warning. As populations age and income rises, demand tends to shift toward healthcare, education, personal services, and care-intensive activities. These sectors often have lower measured productivity growth because quality is hard to measure, labor intensity is intrinsic, and automation cannot easily substitute for trust, supervision, or human contact.

This is Baumol's cost disease meeting the AI-capital-deepening cycle. Leading sectors can become dramatically more efficient, but the labor released or newly employed elsewhere may flow into sectors where productivity is measured poorly or improves slowly. The result is a two-speed economy: frontier sectors show high operating leverage, while much of the employment base remains in activities with lower scalability.

Market Implications: Margins, Wages, and the Inflation Tradeoff

For markets, the productivity mix matters as much as the headline rate. If productivity is concentrated in information, professional services, retail logistics, finance, and advanced manufacturing, then margins can expand most reliably in firms with high intangible capital, data advantages, scalable workflows, and disciplined operating systems. The benefit is less automatic for firms whose labor needs rise one-for-one with volume.

The wage implication is similarly uneven. A worker whose tasks are complemented by software may see higher output and potentially higher compensation; a worker in a low-productivity service sector may face wage gains driven more by labor scarcity than by measurable productivity. That difference affects inflation. Productivity in scalable sectors can reduce unit labor costs, but wage pressure in care-intensive sectors can keep services inflation sticky.

Conclusion: The Productivity Regime Is Stronger, but Not Broadly Democratic Yet

The central argument is that aggregate productivity has improved materially, from roughly 1.2% before the pandemic to roughly 2.25% in 2022–2025, but the composition is narrow and revealing. Information, professional and business services, retail trade, financial activities, and advanced manufacturing are carrying the acceleration through within-sector technological adoption. The rest of the economy contributes little, and labor reallocation toward lower-productivity sectors subtracts from the aggregate. This is a structurally stronger productivity regime, but not yet a broadly diffused one. It can support elevated aggregate productivity even with subdued employment growth, yet the transmission to wages, margins, inflation, and economic resilience will remain uneven until the productivity frontier spreads more fully across the labor base.