The productivity paradox: Why the economy feels fragile

Jared Blikre , Brooke DiPalma and Yahoo Finance Video

Tue, February 10, 2026 at 8:00 PM GMT+9

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Companies are doing more with less, and the market is taking notice…

In this episode of Stocks in Translation, RSM Chief Economist Joe Brusuelas joins host Jared Blikre and Yahoo Finance Senior Reporter Brooke DiPalma to discuss the surprising paradox between rising productivity and slowing hiring. Brusuelas explains how gains in workforce efficiency are driving economic growth even as job growth lags, and what this means for investors, interest rates, and the broader market. The discussion also touches on long-term debt yields and fiscal trends shaping today’s economy.

Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your** favorite streaming service****.**

This post was written by Lauren Pokedoff

Video Transcript

0:05 spk_0

Welcome to Stocks in Translation, Yahoo Finance’s video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I’m Jared Blicker, your host, and with me is my co-host, Yahoo Finance senior reporter, Brooke De Palma, who’s here to connect the dots and to be that bridge between Wall Street and Main Street. Today, we’ve got a top economist who has been very forward-looking and outspoken about the new economic regime that’s come about since.The pandemic, and particularly since the last election. Our word of the day is productivity. Is it truly the holy grail, or the future holy smokes moment if Jay Powell and Co. are reading things wrong? And that ties in today’s market show and tell. We’re breaking down a classic chart pattern on long-term debt yields that President Trump’s team has gotta be watching like a hawk. And underscoring this whole point, this episode is brought to you by the number 7 billion.That’s how many dollars per day the US government is borrowing to feed a deficit that’s rapidly approaching $2 trillion which is feeding right into those stubbornly high long-term interest rates. And today we are welcoming Joe Bruce Willis. He’s chief economist at RSM where he tracks the real economy through the lens of America’s middle market. He’s got more than two decades of experience covering the labor market, monetary and fiscal policy, and he regularly briefs both policymakers and.Business leaders on what the data, what they’re really saying. So Joe, by the way, I, I buried the lead here. This is your 5th appearance, so welcome to the 5-timers. Thank you. Boy,

1:35 spk_1

it’s the biggest achievement I think I’ve had in a longtime.

1:38 spk_0

All right. And on this high note, let’s, uh, jump right into the discussion. We’ll get into productivity in a minute, but what’s your high-level assessment of what’sgoing on?

1:45 spk_1

So we’ve had a pickup in productivity, and this is one of the more positive and encouraging developments we’ve seen in the economy in many years.You know, we had a 4.9% increase in productivity in the third quarter. Moreover, it looks like we’re gonna have a very, a very strong growth, uh, quarter in GDP amidst slower hiring, which always points to pretty strong productivity gains. And at the end of the day, this is really what causes American living standards to increase.

2:15 spk_2

Well, let’s break down, let’s take a step back and break down exactly what the word productivity means. That is our word.Of the day, it’s the holy grail for economists because it’s a way to get more growth without more inflation. In a nutshell, productivity is how efficiently the economy turns inputs and output, basically how much stuff we produce per hour worked or per dollar of resources used. Now if that number starts climbing, companies can grow without hiring as fast, which can cool the jobs market without crashing GDP or growth, and it matters for interest rates because stronger.Activity can change the inflation math. It can take some pressure off prices, but can also keep growth running hot or at least warm. Now add AI into this mix. If this wave of AI spending really does boost output per worker, it could help explain why hiring is slower even while the economy still has some heat. Now, Joe, I know you’re pushing back against the narrative. Is it too early in the game to see these AI gains?And justify

3:15 spk_0

the rate cuts. Yeah,

3:17 spk_1

without a doubt. What we’re seeing is a pickup in productivity due to what we did 3 to 5 years ago. And during the pandemic, we took a large number of casualties, which reduced people in the labor force. We had a period where people were quiet quitting, a lot of people prematurely saw their inheritance show up and they took a time out from the workforce. So as labor got tight,Right? Especially as immigration stopped during the pandemic, which, you know, says a little bit, we want to remember that right now. Alright, firms decided to invest more in capital rather than labor. Sure enough, 3 to 5 years later, you’ve seen a pickup in productivity. That was what I call the machine learning era.Of technology, not artificial intelligence.

4:04 spk_0

AI is out of the equation from what you

4:06 spk_1

just said. Wasn’t even there. We, we’re not even talking large language models, which is what we’re really talking about now. That’s much less

4:12 spk_0

23, but you’re talking even before

4:14 spk_1

that. But that’s right. So

4:15 spk_2

that’s 6 years ago. I can’t

4:16 spk_1

believe it’s been that long.Firms have behaved rationally during the crisis, and we’re now seeing the benefits. We can definitely hire, we can do more with less, and that’s one of the reasons why we’re seeing productivity pick up, but it’s also one of the reasons why we’ve seen hiring slow.

4:33 spk_2

I guess when you think about the jobs report, since we do have this delay, what are you looking for in that report this week to show any signals of this?

4:40 spk_1

All right, so Taylor, which report, which report, there’s gonna be two different reports. There’s gonna be the, the estimate for January. We’re only expecting 30, a net gain of 30,000, right, which under current conditions, well, that’s almost enough to keep the labor market stable, right? But it’s the benchmark revisions.Which we think are gonna be large, happens

5:01 spk_0

every year about this time.

5:02 spk_1

That’s right and downward driven, and we think anywhere between 60,000 and 900,000 jobs are gonna be revised away. What that means is no net job gains in 2025 and we may see a negative print in front of what occurred. Now, that’s a big, big story. We were joking earlier, a year ago. I’m on, uh, TV here with you guys, at Yahoo Finance in about 30 seconds before we went.To to air at 4 o’clock, the president fired the head of the BLS because he didn’t like the downward revisions, right? So, this is a really big deal, and that’s uh, I think gonna require looking at different things. So I’m not certain productivity is gonna be a part of what we see when the jobs, jobs data is released, but that’s something that’s not gonna go away. We’re gonna be talking about this for a number of years. Well,

5:55 spk_0

let meask you then, is the typical lag.Is it at least 3 to 5 years? When do we see these AI productivity gains actually materialize, assuming they will

6:04 spk_1

come back to me 2029, 22039. All right, we’ll after

6:07 spk_2

the current Fed chair that gets named, maybe halfway into their term.

6:12 spk_1

Right? So if we’re thinking about the Fed and potentially lower rates, the Fed will be tempted to hold off on, uh, hiking rates.If we continue to see a productivity trend well above 3%. Now there’s something economists look at called total factor productivity. Back in the nineties when we had the last big um productivity boom, total factor productivity for a two-year period was well above 8%. So we, we’ve got aWays to go, but that doesn’t mean the the worst Fed may be tempted to keep rates at least on hold or even cut them lower than they otherwise would, which denotes some risks around inflation, but this is a good trend. But we’ll have to see how the central bank looks at it.

7:00 spk_0

We want to look at this from a slightly different angle, because for today’s market show and tell, we’re taking a look at a chart of the 30-year yield, that’s a US one, which you can think of as the interest rate or the cost of money for the US government on 30-year debt, and that rate is currently about 4.8% to 4.9%, considerably lower than mortgage rates.And we’re zooming in on a chart pattern that looks like a pennant, or what’s called an ascending triangle at the right side of the chart, which we’re describing for our audio only listeners. It kind of looks like a triangular flag on a pole, and that’s what you get when the market keeps setting higher lows, but you’re still running into the same ceiling over and over, the market is coiling.And here’s why this matters. When the 30 year yield has flirted with the 5% level a few times in the past couple of years, stocks have tended to roll over or sell off in the short run, and that’s where you get that rate shock pressure, pressure. That pressure has been short-lived because rates have pulled back each time, which kind of releases it from that pressure, but thosePullbacks keep getting shallower and shallower, which creates the triangle and compresses volatility, winding the market like a spring ready to pop. So at some point the triangle is gonna break, and the direction is usually in the direction of the existing trend, which in this case is up, but it’s important to point out that we could also get a move down, it’s just less likely.So Joe, what do those situations look like to you? Because you know, the administration is kind of concerned about higher long-term rates. And you said yourself that the, this Trump 2.0 is looking at the bond market, not necessarily the stock market.

8:33 spk_1

So we were just talking about productivity. Um, the traders at the long end aren’t buying the argument that productivity matters here. What they’re worried about is the, the sustainability of the.Longer term US fiscal path. One of the dirty little secrets of populism, whether it’s right wing or left wing, is they love, um, unfunded fiscal expansionary policy. The left wing just wants the government to spend, the right wing just wants it to cut. Either way, you get higher budget deficits, and that unique triangular pattern, that pennant pattern, actually it is showing the markets getting ready to coil upward.Right? Towards 5% or higher. And you know, we’re in the midst of a large tax cut that’s just starting to show up, right? We think that the cumulative effect in terms of cash going in household pocketbooks is gonna be around $130 billion in the first six months of this year. The US that’s a lot. That’s a lot of stimulus, that’s right. We’re gonna, the US economy is about to take off, people.Usually when the US economy takes off, interest rates tend to trail upward.

9:37 spk_0

So you’re definitely not in the recession camp for this.

9:39 spk_1

No, no, no, we’re not going into recession under periods where you’ve got expansionary fiscal policy, like we saw during the Biden administration, and like we’re seeing during the Trump administration. It’s just not going to happen this year.

9:53 spk_2

But at a time where consumers are, are saying the prices are still going to stay elevated this year and now they’re expecting this money, how does this all sort of play outthen?

10:03 spk_1

Well, Brooke, you tell me which consumers we’re talking about, and then we’ll have a very interesting discussion. Ah,

10:09 spk_2

so the K-shaped economy,

10:10 spk_1

the

10:10 spk_2

K-shaped

10:11 spk_1

economy. Look, I just use very simple math.I’ll look at the data the US government provides us, and what it will tell me is that what I’ve known now for the better part of 20 years, that the upper two quintile of income earners, those are the upper 40% of households, are responsible for well over 60% of spending. If you look at the middle class, the working class, and the working poor, it’s not even 40%.Those upper quintile income earners are the ones really driving the GDP. Now, GDP does a very good job of telling us about production, consumption, and investment. But it doesn’t always tell us, do an adequate job about telling us how we live right now. If you live in the upper spur of the Ky, things are pretty fantastic. Life is good. There’s an investment horizon. You own.Uh, as real assets, you own housing. You have exposure to equity markets in general, and tech in particular. All policies tilted towards you, you’re gonna have a very different response function to inflation that’s say between 3 and 4% than say, lower middle class, who takes a look at their bills every month and says,What the hell’s going on with my electricity bill?

11:26 spk_2

Yeah, winter,

11:28 spk_1

right, up 6.7% over the past year if you add in fuel. Food’s up 3.1%. I mean, I could go on and on. Yeah,

11:37 spk_2

we willget a new printout of CPI this Friday. So we’ll have to stay tuned for that. But we do need to take a quick short break. But coming up we’re talking fiscal dominance and record borrowing and a runway showdown that challenges AI to show its hand. Stay tuned.This episode is brought to you by the number $7 billion. That’s roughly how many dollars the US is borrowing every day to finance government operations. Now Joe noted this in a recent Real Economy blog post for RSM, adding that the deficit is heading toward about $2 trillion this year, and this has big potential ramifications for the markets, particularly through interest rates in the bond market, because when the government needs to borrow at that scale, it can shape the price of money, the level of.Long term rates and how easy or hard it is for everyone else, consumers and companies to finance things. So Joe, please lay out how these eye-watering numbers, what they mean for investors as well as everyday Americans.

12:39 spk_1

The cost of money is going to rise. If you’re going to engage in leverage, it’s going to be more expensive. And so you really have to have a real strong investment thesis around what area you’re in and around the economy itself.

12:55 spk_0

Joe, this seems to tie into the affordability that we’re just getting at before the break. So sorry to cut you off, but maybe we can kind of tie all this together now.

13:03 spk_1

Alright, so, the cool thing about my, my, my life is I get to travel around the country and the world talking about the US economy and the global economy. The last year has been very instructive.You know, if you go out and you try to tell somebody or the public that they don’t have an affordability problem.I’ve seen people get laughed at, mocked, booed, and heckled. What’s going on out there is, is, we’ve had 5 years of a, of a price shock, and people are beginning to make up their minds about where they’re at relative to the, the greater economy. And for many people, it’s, it’s not good. So Jared, that that affordability issue is front and center with what I call the post-pandemic economy.And the regime change that we’re, we’re, we’re we’re undergoing right now. But

13:52 spk_2

what happens after this bill spurs consumer spending, because we’re hearing it’s gonna lift companies like McDonald’s and people are lower income consumers are gonna be able to go back to them. But what happens when that check is cashed? The rising tide, they don’t have it anymore. Where are we at at the end of 2026?

14:09 spk_1

Well, my sense is, is that, uh, we fall back towards the 2% growth trend.Again, that’s a macroeconomic aggregate, right? It will just depend what area of the very segmented economy you have exposure to, right? So the economy this year is gonna grow probably somewhere between 2.5% and 3% it’s looking like, right? OK, if you’re working in tech, if you’re working in services that have exposure to tech, you’re gonna probably look back on this year and smile. If you work in manufacturing,Uh, no, you’re, you’re gonna have another stagnant year at best. If you have exposure, say, to agriculture, which is taking it on the chin, due to tariffs, another year of contraction. Right? So, we really are falling into this new world, where we have a highly segmented economy, and we need to talk to people where they are, in order to understand what’s happening. Now, as an investor,You’re gonna be overexposed to the areas that you know are going to do well on the backside of this. Yes, money’s now spilling out into the broader economy. You no longer just have to look at NASDAQ or the S&P 500, you can look at the Russell 20.000 or 3000, I think this is looking pretty good, and we are small and mid-caps are looking even microcaps, that’s right, things are looking pretty good because money is now spilling over and one would think, following a very large, uh, unfunded tax cut, we would likely see that. But when we get into 27 and we get into 28, we’ll we’ll see what the conclusion is. When you engage in a tax cut, the idea is to cause the chart to move up into the right.If you think your long term trend rate, trend growth rate is 1.8%, at the end of that, you’d rather see it at 2.2%, 2.3%. Now, we don’t know if that’s gonna be the case. I don’t expect it to be, right? But it’s good that you ask that question, because we’re adding debt rapidly, getting to the point where $2 trillion a year is gonna become normal, and that’s why we see um,The shape of the curve beginning to get a bit steeper. Those long term rates are rising. We’re not just looking at 10 years, we’re now looking at 30. That’s exactly right. And you know, you’ve been in the business a long time. Young Brooke, maybe not so much. Um, when was the last time we gave a crap about the 30

16:31 spk_0

year? GFC? Yeah,

16:34 spk_1

that’sright. That’s exactly right. So that tells you a little bit about this regime change that we’re we’re progressing through.

16:41 spk_0

So, one more question on this, just kind of for investors, you’re not a portfolio manager, but I think what you’re talking about here is the economy running hot this year, and maybe we, we have some issues in the later 27, 28, but um, any areas you think are gonna do particularly well, uh, is a continuation of prior trends, you mentioned small caps, like what do you see hitting this year? Alright,

17:03 spk_1

so we saw the, the fourth quarter earnings statements.Did you guys take a look at the money on the table for the AI data centers? My lord, we went from 390 billion to almost $670 billion. That’s a two-year run rate of 1.1 trillion. OK, when that happens, the GDP is gonna take off, right? We’re not gonna hire a lot of people, so one would expect the productivity numbers are gonna look pretty good.Right? Um, moreover, that unfunded tax cut is being layered on top of that. Imagine if the Supreme Court overturns the tariffs and they start giving refunds to the corporate sector. OK, my view of this is, this isn’t just gonna be clustered in NASDAQ and the S&P 500, you want exposure to those mid-caps. That’s where I think, maybe even microcaps. Yeah, you know what, with that much cash flowing through the system.It’s going to spill over. Now, the, the thing is, will that be sustained? That’s a separate question, perhaps for a separate day.

18:01 spk_2

And I was gonna say it doesn’t sound like you have this fear that Wall Street has had these past few weeks about AI spilling over and the impact on software and on all these other sectors. The

18:11 spk_0

apocalypse.

18:12 spk_1

AI is a transformational and.Disruptive technology. We’re all going to get disrupted at one point or another. It’s, it’s not at the doorstep, it’s in the house now. And it’s how you mitigate that risk, how you reposition, whether it’s your business, which we spent a lot of time doing in my business, or it’s your portfolio for those changes to come. And we’re not just guessing here, we can now see the shape of things.Right? So I think that that’s probably a little bit more important right now, is understanding, hey, that money on the table.Even if we only get half of it, it’s serious. And it says something, and we needed to begin thinking about not only how that’s gonna impact the macroeconomic aggregates, how’s it gonna transform the microeconomy, how’s it gonna impact my business.

19:02 spk_0

And now we’ve got a market stake on a classic Hollywood gab show staple, who wore it better. And today’s runway is macro, two big forces, two very different looks. On the left catwalk, Strutt’s AI boom, the high voltage.Investment fit. He hits the spotlight in a sleek silver utility jacket with LED-like piping, a hard hat chic helmet, and an AI tool belt packed with all the latest tools, all business, all build out. On the right catwalk steps fiscal boom, the power of spending look. She’s wearing a crisp navy navy blazer with gold buttons and asatchel that carries Uncle Sam’s budget briefcase, structured, steady, and very expensive. So Joe, who’s wearing the economy better right now? AI investment or fiscal policy? And what are you watching to tell us which one is really doing the heavy lifting? So

19:51 spk_1

it’s definitely the, the, the tech sector that’s wearing it better, but what we’re gonna want to see is that.If it is transformed into actual demand for the products, and then we see the products being integrated into the production of goods and provision of services that then sustains a transformational productivity boom.

20:13 spk_2

What are some examples that in both investors and everyday Americans can look out for to see that translate in? OK,

20:20 spk_1

so, um,Let’s say you’re thinking about making a series of acquisitions, global acquisitions.And this would normally require going out and hiring consultants, right?Well, I can go into um perplexity.And if I know how to position and phrase a question just right, I can probably turn that into a forward looking memorandum on how to organize and execute on that acquisition, saving you myself substantial sums of cash, and this is in the service sector. Now in the.Industrial sector, I think it’s a little bit more instinctive because robots have been around for a longtime.

21:08 spk_0

People understand robots, they do things that we do. That’s

21:11 spk_1

right, and especially in, say, the auto sector, right? But as we fuse together software and services with hard AI, let’s call it, it’s going to do a better job at identifying, hey, you need to change that filter, you need to change that liquid.Right, which will then extend the lifetime cycle of the hardware that you have, right? Those are quality improvements in economics, we call that lower inflation through quality improvements, or hedonics, right? So we can connect organically the micro to the macro and actual real behavior on the part of human beings.

21:50 spk_0

Love that, hedonics, um.Yeah, that reminds me of the global financial crisis too, as I was trying to figure out why inflation was so low. Um, we got just like another minute here. Anything we didn’t touch on, always fascinating talking to you. I love your insights, anything forward looking that you’d like to share.

22:05 spk_1

That regime thesis change that I mentioned, that’s about higher, it’s about, it’s right, we did, it’s about higher interest rates. And I think if we revisit, we take a look at, we got that right.You know, things are happening now. We went from insufficient aggregate demand to inefficient aggregate supply. Look at what’s going on in commodities. I mean, we’re really at just the first stages of a long-term commoditycycle.That’s right, yeah. Well, gold’s a little bit of a play on the change of the rules-based order, right? Gold and silver may go up and down, but watch the other commodities that have use in terms of overall.Overall industrial production picking up things like that

22:42 spk_0

record or copper

22:43 spk_1

copper copper is the one you want to watch, right? Yeah, life’s changing at a quick pace. Get, getting, get in the game and get involved. Oh,

22:52 spk_0

all right. And on that, yes, buckle up, everyone. And on that note, uh, thank you again, Joe. 5-timer, welcome to the club, and, uh, next time we’ll get you a hat, I promise.Um, and just to review a couple of things, we started out with productivity, is it the holy grail, or is it just kind of a misleading number? It wasn’t, I was thinking about this structurally wrong because you really cleared things up, Joe, when you said it’s about the last 2 to 5 years, and that was, that was pre-AI and so that’s maybe explaining the boom that we’re seeing, but it doesn’t explain the future.Nevertheless, we are in the midst of record fiscal expansion right here, and it looks like the Fed’s running it hot. It looks like this is gonna be a hot year, so watch out for those microcaps. And on that note, we’ve got to wind things down here at Stocks in Translation. Be sure you check out all our other episodes of the video podcast on the Yahoo Finance site and mobile app. We’ll catch you next time on Stocks in Translation.

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