12/14/25
S&P 500: 6827
Nasdaq: 23,195
10 Year Treasury: 4.1%
David R. Snyder, CFA
Productivity growth is supposed to be the savior for high valuations and lack of employment growth, but so far that has not been the case. Productivity gains in 2020 and 2021 were attributed to higher capital intensity and labor composition. Coming out of recessions there are fewer workers from an increasing level of output (capital intensity) and fewer workers with less education (labor composition). But once the economy is back to normal total factor productivity (TFT) which represents true innovation takes over as main driver of productivity growth. The data show improved TFP beginning a year after the recession but not much higher than the last decade. We had strong productivity growth in 2024 (2.7%) and 2023 (1.9%) but those figures are overstated as they are merely a rebound from the long period of negative growth in productivity growth from 4Q21 through 2Q23. For the first half of 2025 annualized productivity growth has been 0.75% and for the year is expected to be About 1.5%. The biggest productivity gains occur the year after a recession, and then diminish over time (In addition there was a one-time second boost to productivity in 2023-24 when supply chain issues were resolved). That is the case again with this cycle, and overall productivity gains have not broken the lower productivity long term trend from last decade.
Productivity growth is not a panacea. Productivity growth from 2000 to 2004 averaged 3.2% annually above the rate of 3.0% from 1995-1999. Yet GDP averaged 2.7% annual growth vs. 4.3% from 1995-1999 as aggregate hours worked fell by 0.6% per year. The S&P 500 declined 6% per year in real dollars from 2000 to 2004. Expect productivity to accelerate from 2026 or 2027 to 2032 due to AI but the stock market could still perform poorly just as it did from 2000 to 2004. Big cap technology companies actually held back productivity growth last decade because of their monopolistic practices. Tech stocks had one of their best decade’s performance, yet productivity was well below historical levels. Unless antitrust laws are enforced more this could be a major problem again in the next ten years.
Full Disclosure: I own several of the securities mentioned positively. None have been purchased within the last month. The opinions merely represent the opinion of the author as CIO of Journey 1 Advisors, LLC and intended to inform the readers about our investment philosophy and strategy. The contents of this report are based on sources believed to be reliable. It is not intended for circulation. It is not intended to offer investment advice, or to recommend the purchase or sale of any securities or investment product. Investment advice is only given after a client has signed an investment advisory agreement with Journey 1 Advisors, LLC and will be subject to the terms and conditions therein. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock’s expected performance and risk.