Reconciling Recent Strong Output Growth with Rising Unemployment

Dylan C. Jacobs and Pawel Krolikowski
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Dylan C. Jacobs: https://www.clevelandfed.org/people/profiles/j/jacobs-dylan

Economic Commentary, 2026, vol. 2026, issue 06, 9

Abstract: Over the last three years, robust GDP growth alongside comparatively weak labor market data on jobs and unemployment has presented a puzzle to policymakers and analysts. This disconnect shows up as elevated labor productivity growth and an unemployment rate that has risen despite robust GDP growth, violating the usual inverse relationship known as Okun’s law. We show that these data may be less puzzling than they appear. Historical revision patterns provide no evidence that recent productivity gains will be revised away. And once we account for lagged effects, the comovements of recent GDP and unemployment rate data are consistent with historical patterns.

Date: 2026
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DOI: 10.26509/frbc-ec-202606

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