Week Ending: May 8, 2026

Productivity Promise

Data released this week showed that U.S. nonfarm productivity growth increased 2.9% over the last year in the first quarter of 2026, in line with the higher productivity growth trend since 2023. Is AI adoption actually making workers more productive? For a small subset of the population, maybe, but we suspect it probably has more to do with math. Productivity is calculated as output per hour worked, so with little to no net employment growth in 2025 and still-resilient real GDP growth, measured productivity will naturally appear stronger. Much of the recent GDP growth reflects AI capex that boosts output through fixed investment but requires little labor. As it turns out, several other measures of productivity that better capture underlying economic efficiency, such as the utilization-adjusted total factor productivity measure from the San Francisco Fed, suggest productivity has been slowing, implying that AI-driven long-run productivity remains an early promise. In the short run, though, the AI buildout is keeping the U.S. economy on a solid footing despite the lack of job growth.

Highlights of the Week:

High Yield: The wave of high yield data center issuance in April carried over into May, with a cross-sector torrent of new issues as deals were priced across nearly every industry, despite incrementally higher interest rates. The primary market remains wide open, a sign of health for the asset class.

Corporates: Following the second-busiest April on record for investment-grade corporate issuance, issuance remained strong at $35 billion in the first week of May. With most companies now having reported quarterly earnings, issuance is expected to stay strong across sectors next week.

Municipals: April reinforced the 2026 municipal (muni) market trend, with steady inflows offsetting elevated supply and driving a 1.15% return for the Investment-Grade Muni Index, its strongest April since 2014. The index outperformed U.S. Treasuries, taxable munis, and U.S. corporates, but lagged the High Yield Muni Index, which posted a 1.36% return during April.

Equities: The U.S. equity market continued its upward momentum, reaching fresh all-time highs and closing out another positive week, as investor sentiment remained supported by easing geopolitical tensions and stronger-than-expected corporate earnings. Sector performance was led by technology, consumer discretionary, and communications, while energy, utilities, and financials lagged the broad market.

Securitized Products: Despite mortgage rates briefly hitting a 3-year low, the housing market remained stagnant in the first quarter. Home sales are still depressed at -20% below pre-Covid averages, similar to the past several years, while national housing inventory normalizes. Housing supply is creeping higher, but it remains below the historical equilibrium level. Market participants continue to expect more-or-less flat home prices nationally in 2026, with wide performance dispersion locally.