Federal Reserve Bank of Atlanta chief economic advisor David Altig returned to Savannah State University on Tuesday to share his outlook on three mysteries: the labor market facing population pressures, rising inflation and artificial intelligence’s impact on employment and productivity.
Altig said new studies, surveys and data help the Federal Reserve work through these age-old questions, but these mysteries remain unsolved since he last held this mid-year economic outlook talk a year ago.
“Remarkably little has changed since last year,” Altig said. “It is the same kind of crazy ride with the same sort of questions that we have been dealing with for a while.”
Overall, U.S. economic growth measured by gross domestic capital has continued to slow to a normal level around 2%. This reflects the state of Savannah’s economy as well, Altig said.
Economic growth is a combination of how fast labor productivity is growing and how fast the labor population is growing. The country is seeing a sudden and large decline in population growth due to tightening immigration policies. By 2029, population growth from native residents is projected to completely halt due to an aging population. Altig said this may cause the labor market to have more jobs than workers available, which will slow down job growth and create price pressures on the economy.
“Supply is basically constrained by these facts of native fertility—that’s what economists like to call it—and immigration, and that picture does not look all that robust,” Altig said.
Productivity, meanwhile, is experiencing a boom. An increase in productivity allows for lower costs, which can soothe high inflation.
However, this productivity is likely not due to AI.
Economists of the Atlanta branch worked alongside the central banks of Germany and the United Kingdom to survey almost 6,000 business executives across four countries and their firms’ uses of AI.
According to the surveys, 69% of businesses use AI technology in some way, with this number expected to rise to 75% in the next three years.
Despite the growing usage of AI in many firms, survey results show that AI has had little to no impact on both their employment and productivity over the past three years. Over the next three years, some firms expect a change in productivity and employment due to AI, but a majority still expect no impact.
“Productivity has really exploded, and yet the AI revolution is not even with us yet in terms of its effect on productivity,” Altig said.
Altig cites the jump in business investment in machinery, equipment and software as a major factor to the productivity growth. Many federal policies have supported the growth in investment, including the One Big Beautiful Bill.
Altig said an eventual productivity growth from the AI revolution could supplement the current growth, possibly even bailing the country out of its economic “growth conundrum.” But like many other economic indicators, these short-term models require many more years to develop and confirm.