The Trump administration and the Federal Reserve are both counting on a 2025 productivity boom continuing through 2026 and fueling a continued growth surge.

• There are two key risks: One is that it doesn't happen; the other is that it does.

The big picture: Companies have been able to grow output rapidly over the last couple of years — including in the most recent quarterly reading out this morning — without needing much more labor to do it.

• The good news is that it's driving strong headline GDP growth and should push incomes higher over time. The bad news is that in the near term, it may be contributing to soft labor demand and a difficult job market.

By the numbers: Labor productivity rose at a stunning 4.9% annual rate in the third quarter, the government said this morning, as output rose at a 5.4% rate and hours worked increased only 0.5%.

• In effect, even as hiring slowed way down, companies were still able to produce more goods and services.
• It continues a remarkable run. Over the last two years, labor productivity has risen at a 2.3% annual rate, far better than the 1.1% average in the 2010s.

Between the lines: AI advances might be part of the story. So could a business investment boost fueled by the Trump administration's tax and deregulatory policies. But the timing doesn't completely line up.

• The productivity surge started in the spring of 2023, when ChatGPT still looked more like a novelty than a business tool and when the 2024 presidential election was far off.
• Another potential factor driving the output surge: Companies invested in labor-saving tools and practices made during the super-tight labor market of the post-pandemic era that may be paying off.
• Fed chair Jerome Powell noted last month that "the pandemic may have induced people to do more automation and do more things with computers to replace people," raising hourly output.

Another factor may be what economists at SGH Macro call a "tenure dividend." There is less churn in the labor market right now than usual, with fewer people being hired and fewer quitting.

• As a result, the average worker is more seasoned and thus the workforce is "skewed toward fully onboarded, experienced employees, mechanically boosting output per hour worked," Tim Duy and Josh Lehner wrote in a report.

Zoom out: If the productivity boom continues, it's great news for GDP, the stock market and the nation's long-term fiscal health.

• But it also would imply that companies don't need to do much hiring amid an already-soft labor market, which could limit income growth and therefore overall demand in the economy.

Flashback: For a potential analogue, consider 2002. Productivity growth was spectacular, at 3%. That enabled solid overall GDP growth.

• But it was a crummy year for American workers, as employers shed about 400,000 jobs and the unemployment rate averaged 5.8%.

The bottom line: For continued growth and long-term prosperity, we should hope the productivity surge continues. But there's no guarantee it will translate into a booming job market in the short run.

Americans' outlook on employment darkened last month: Job-finding expectations fell to the lowest level on record.

By the numbers: Survey participants' average response on the odds that they could land a new gig within three months in the event they are laid off fell 4 percentage points, to 43%, in December, according to the New York Fed's survey of consumer expectations — the lowest in its 13-year history.

• The drop was driven by survey respondents whose annual incomes were less than $100,000, with pessimism most pronounced for workers over 60 and those with a high school degree or less.

The intrigue: That was accompanied by a more pessimistic view about employment.

• Consumers saw, on average, a roughly 15% chance of losing their job in the next year, up more than a percentage point from November.

The other side: Even so, consumers were slightly less gloomy about nationwide joblessness: The average probability that the unemployment rate will be higher a year from now fell by 0.3 percentage point.

• There were also mixed views about personal finances: "Delinquency expectations deteriorated to the highest level since the onset of the pandemic, but respondents were more optimistic about their future household financial situations," the New York Fed said in a press release.

The bottom line: Economic angst is spreading beyond just inflation and affordability issues, with more consumers downgrading their views about employment.

• Median inflation expectations for the year ahead rose 0.2 percentage point to 3.4%, but expectations held steady for the longer-term, the New York Fed said.