White House economic adviser Kevin Hassett said about 85% of the U.S. economy is undergoing a "massive productivity shift" driven largely by artificial intelligence and automation. He tied recent employment softness to productivity gains that allow firms to maintain or raise output with fewer workers.
Hassett noted the acceleration of AI adoption across services, manufacturing, and professional sectors, producing substantial efficiency improvements while also creating uneven labor-market effects. Economists described the pattern as contributing to a K-shaped recovery, with gains concentrated among higher-income households and shareholders.
The administration and outside forecasters expect a return to stronger growth (around 3–4%) by early 2026, but Hassett warned of a temporary GDP contraction of roughly 1.5% in late 2025 related to fiscal disruptions and global uncertainty. Industry analysts confirm a rapid rise in AI implementation, though major firms did not provide detailed productivity figures for this report.
Policy responses under discussion include targeted fiscal measures to support lower- and middle-income households, housing assistance proposals for first-time buyers, and deficit reduction plans. Debate continues about how best to ensure productivity gains are broadly shared without slowing innovation.
Market observers are reallocating toward sectors expected to benefit most from technology-driven efficiency gains, while labor economists emphasize retraining and safety-net measures to mitigate transitional harms. The balance between rapid productivity growth and inclusive economic outcomes remains a central policy challenge.
Correction: An earlier version misstated the timing of the projected GDP contraction. It is expected in Q4 2025, not Q4 2024.