Productivity Puzzle

Week Ending: February 27, 2026

Productivity Puzzle

Average Annualized Growth Rate Of Employment And Productivity In Expansions*

Fear that AI will radically boost productivity and eliminate jobs circulated through markets again this week. Interestingly, though, rapid productivity growth has not (yet) plagued the economy in the current cycle. Historically, more rapid productivity growth has coincided with stronger job growth. For example, the 1950s and 1970s expansions saw both strong productivity gains and job growth. Meanwhile, in expansions with weaker investment and productivity, such as the 2010s, job growth was also relatively weak. Could AI upend the relationship, with never-tired, never-sick, always-working AI agents replacing workers? It's possible, but not our baseline. Perhaps, in the short run, AI can reduce the need for hiring for repetitive tasks. However, in the long run, history suggests that new technologies often create new industries and more jobs that need to be done. After all, 60% of today's jobs didn't exist before the 1940s, yet a much larger share of the prime-age (25-54) population has a job today (80%) than in the 1940s (63%)!

Total Returns by Asset Class

Highlights of the Week:

High Yield: Netflix surprised the market by withdrawing its bid for Warner Bros. Discovery (WBD), and Netflix's stock surged while WBD bonds declined. The market worries that Paramount, the winning bidder, will face greater challenges in managing WBD's large outstanding debt stack. Active managers need to carefully manage their positions in large and special situations, including issues like WBD.

Corporates: Investment grade (IG) corporate primary supply continues to come in strong, with February closing at $193 billion, bringing year-to-date totals to $411 billion, 19% higher than the same period last year. While Treasury rates are falling, IG corporate spreads are five basis points (bps) wider on the week at an option-adjusted spread of 82 bps.