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IS AI FINALLY SHOWING UP IN PRODUCTIVITY DATA?

Joe Kalish, chief macro strategist at Ned Davis Research, is examining a question investors have been asking for years: Is AI already boosting productivity?

In a note published Friday, Kalish, with research support from Patrick Ayers, revisits the famous observation made by Nobel Prize-winning economist Robert Solow in 1987: "You can see the computer age everywhere but in the productivity statistics." The remark became known as the Solow Productivity Paradox because it took years for the benefits of computers to show up in official data.

Kalish notes that nonfarm productivity grew at just a 1.3% annual rate between late 1976 and late 1989, well below the long-run average. Yet later revisions showed a sharp acceleration in productivity during the late 1990s and early 2000s as the digital revolution took hold.

Could AI be producing a similar effect today?

Following the pandemic, productivity rebounded sharply, peaking at 3.5% at the end of 2023. It slowed to 2.0% in early 2025 before climbing back to 2.8% in the first quarter of 2026. Some economists and policymakers attribute at least part of that improvement to AI and other emerging technologies.

Kalish also examined productivity through a different lens: real revenue per employee. After adjusting for inflation and changes in company asset bases, this measure can offer another view of how efficiently businesses are operating.

By that gauge, the recent trend resembles earlier productivity booms, including the gains seen during the technology-driven expansions of the late 1990s and the years leading up to the financial crisis. Those periods were followed by a long stretch of sluggish growth often described as "secular stagnation."

Kalish's conclusion is straightforward: the economy appears to be entering another productivity upswing. Whether AI proves to be the main driver remains to be seen, but rising real revenue per employee is supportive of equity valuations.

(Terence Gabriel)

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