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Robots and happy workers: Productivity surge helps explain US economy's surprising resilience

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Robots and happy workers: Productivity surge helps explain US economy's surprising resilience

WASHINGTON (AP) — Trying to keep up with customer demand, Batesville Tool & Die began seeking 70 people to hire last year. It wasn’t easy. Attracting factory workers to a community of 7,300 in the Indiana countryside was a tough sell, especially having to compete with big-name manufacturers nearby like Honda and Cummins Engine.

Job seekers were scarce.

“You could count on one hand how many people in the town were unemployed,” said Jody Fledderman, the CEO. “It was just crazy.’’

Batesville Tool & Die managed to fill just 40 of its vacancies.

Enter the robots. The company invested in machines that could mimic human workers and in vision systems, which helped its robots “see” what they were doing.

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The Batesville experience and others like it have been replicated countlessly across the United States for the past couple of years. Chronic worker shortages have led many companies to invest in machines to do some of the work they can’t find people to do. They’ve also been training the workers they do have to use advanced technology so they can produce more with less.

The result has been an unexpected productivity boom, which helps explain a great economic mystery: How has the world’s largest economy managed to remain so healthy, with brisk growth and low unemployment, despite brutally high interest rates that are intended to tame inflation but that typically cause a recession?

A Halter robot collects a finished piece for blood pressure pumps from a Mazak Integrex at Reata Engineering and Machine Works Thursday, Feb. 15, 2024, in Englewood, Colo. (AP Photo/David Zalubowski)

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To economists, strong productivity growth provides an almost magical elixir. When companies roll out more efficient machines or technology, their workers can become more productive: They increase their output per hour. A result is that companies can often boost their profits and raise their employees’ pay without having to jack up prices. Inflation can remain in check.

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, has likened surging productivity to “magic beanstalk beans for the economy. … You can have faster income increases, faster wage growth, faster GDP without generating inflation.’’

Joe Brusuelas, chief economist at the tax and consulting firm RSM, said, “The last time we saw anything like this was the late 1990s.”

That was when a productivity surge — an early payoff from the sudden embrace of laptops, cellphones and the internet — helped allow the Federal Reserve to keep borrowing rates low because inflation remained under control even as the economy and the job market sizzled.

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A worker at Reata Engineering and Machine Works programs a Mazak Variaxis machine used to make semiconductor pieces, Thursday, Feb. 15, 2024, in Englewood, Colo. Reata, which supplies the aviation and medical device industries, has invested heavily in software that automates its manufacturing processes. It's also been training workers to use more sophisticated equipment. (AP Photo/David Zalubowski)

A worker at Reata Engineering and Machine Works programs a Mazak Variaxis machine used to make semiconductor pieces, Thursday, Feb. 15, 2024, in Englewood, Colo. (AP Photo/David Zalubowski)

This time, the Fed’s aggressive streak of rate hikes — 11 of them starting in March 2022 — has managed to help cool inflation from a four-decade high of 9.1% to 3.1% while causing little economic hardship.

“I would have said it’s not possible,’’ said Sal Guatieri, senior economist at BMO Capital Markets. “But that’s exactly what happened.’’

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A year ago, nearly every economist was warning that a recession was all but inevitable. Fed Chair Jerome Powell himself warned in 2022 that beating inflation would inflict “some pain” in the form of widespread layoffs and higher unemployment.

By last month, Powell was sounding a different note. With unemployment barely above a half-century low, the Fed chair told reporters, “We’ve had a very strong labor market, and we’ve had inflation coming down.”

He did caution that the central bank wants to see further progress in slowing inflation. Yet the Fed is so optimistic that inflation is heading toward its 2% goal that it hasn’t raised rates since July and is expected to cut rates multiple times this year.

A box of parts for blood plasma pumps sits ready for shipping from Reata Engineering and Machine Works Thursday, Feb. 15, 2024, in Englewood, Colo. At Reata, which makes parts for aircraft and medical device manufacturers,

A box of parts for blood plasma pumps sits ready for shipping from Reata Engineering and Machine Works Thursday, Feb. 15, 2024, in Englewood, Colo. (AP Photo/David Zalubowski)

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Perhaps the likeliest explanation is the greater efficiencies that companies like Batesville Tool & Die have managed to achieve in the past year or so. Before productivity began its resurgent growth last year, a rule of thumb was that average hourly pay could rise no more than 3.5% annually for inflation to stay within the Fed’s 2% target. That would mean that today’s roughly 4% average annual pay growth would have to shrink. Yet higher productivity has changed that equation: There’s now more leeway for wage growth to stay elevated without igniting inflation.

“A lot of that pressure on business finances — that normally causes them to raise prices — has been offset by strong productivity growth,’’ Guatieri said.

At a news conference this month, Powell was asked whether he believed higher productivity helps explain why the economy has kept growing steadily even while inflation has tumbled.

“That’s one way to look at it — yeah,” Powell replied.

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The productivity boom marks a sharp shift from the pre-pandemic years, when annual productivity growth averaged around a tepid 1.5%, according RSM’s calculations. Everything changed as the economy rocketed out of the 2020 pandemic recession with unexpected vigor, and businesses struggled to re-hire the many workers they had shed.

The resulting worker shortage sent wages surging. Inflation jumped, too, as factories and ports buckled under the strain of rising consumer orders. Parts shortages arose.

Desperate, many companies turned to automation. Investment in equipment and in research and development and other forms of intellectual property accelerated. The efficiency payoff began to arrive almost a year ago. Labor productivity rose at a 3.6% annual pace from last April through June, 4.9% from July through September and 3.2% from October through December.

At Reata Engineering & Machine Works, “efficiency was kind of forced on us,’’ CEO Grady Cope said. With the job market roaring, the company, based in Englewood, Colorado, couldn’t hire fast enough. Meantime, its customers were starting to balk at paying higher prices.

Semiconductor pieces sit in a shipping box as they are produced in a Mazak Variaxis machine at Reata Engineering and Machine Works Thursday, Feb. 15, 2024, in Englewood, Colo. Reata, which supplies the aviation and medical device industries, has invested heavily in software that automates its manufacturing processes. It's also been training workers to use more sophisticated equipment. (AP Photo/David Zalubowski)

Semiconductor pieces sit in a shipping box as they are produced in a Mazak Variaxis machine at Reata Engineering and Machine Works Thursday, Feb. 15, 2024, in Englewood, Colo. (AP Photo/David Zalubowski)

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So Reata installed robots and other technology to produce more with less. Software allowed it to automate the delivery of price quotes to customers. That process used to require two weeks. Now, it can be done in 24 hours.

Many economists and business people say they’re hopeful, if not certain, that the productivity boom can continue. Artificial intelligence, they note, is only beginning to penetrate factory floors, warehouses, stores and offices.

“Right now, AI is not a critical enabler for us; it’s an assistant and accelerator in certain roles,’’ said Peter Doyle, CEO of Hirsh Precision, which makes parts for the aerospace and medical device industries. “The world is still trying to understand what AI is capable of doing and how quickly it will advance.’’

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The early evidence suggests that AI could sustain the productivity gains. A study last year by Erik Brynjolfsson of Stanford University and Danielle Li and Lindsey Raymond of the Massachusetts Institute of Technology tracked 5,200 customer-support agents at a Fortune 500 company who used a generative AI-based assistant in 2020 and 2021. The AI tool provided suggestions for dealing with customers and links to useful internal documents.

Those using the chatbot were found to be 14% more productive than colleagues who didn’t use the tool. They handled more calls and completed them faster. The biggest gains in productivity — 34% — came from the least-experienced, least-skilled workers.

Automation tends to raise fears that machines will replace human workers and thereby kill jobs. Some workers supplanted by robots do often struggle to find new work and end up settling for lower pay.

Yet history suggests that in the long run, technological improvements actually create more jobs than they destroy. People are needed to build, upgrade, repair and operate sophisticated machines. Some displaced workers are trained to shift into such jobs. And that transition is likely to be eased this time by the retirement of the vast baby boom generation, which is causing labor shortages.

Some of today’s productivity gains may be coming not just from advanced technology but also from more satisfied workers. The tight labor markets of the past three years allowed Americans to change jobs and find others that pay better and make them happier and more productive.

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One of them was Justin Thompson, of Kalamazoo, Michigan, who had felt burned out by his job as a police officer, with its 16-hour workdays .

“I was literally running myself into the ground,’’ he said.

Thompson’s wife saw a job posting for operations manager at a charter airline. Even without airline experience, his wife felt he could use skills he gains as a Marine Corps infantryman — handling logistics for missions — during tours in Iraq and Afghanistan.

She was right. Omni Air International hired him in 2019.

Thompson, 43, said he he loves the new job, which allows him to work from home when he’s not traveling. And his Marine experience — which included developing ways to improve efficiency — has proved invaluable. Technology helps, too: Thompson travels with a laptop, iPad and mobile printer and uses proprietary software to manage logistics.

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Other workers have switched from low-skill jobs to those that pay better and are more productive.

“The people who were rolling tacos on Dec. 31, 2019 … yeah, they’ve moved up,’’ RSM’s Brusuelas said. “They’re doing other things and making a lot more money.”

At Reata Engineering, staffers were trained to use new sophisticated equipment. One 19-year-old employee, a university engineering student, has used AI tools to make company training materials less cumbersome and time-consuming.

“The whole point is not to lay people off,’’ said Cope, the CEO of Reata Engineering. “The point is to make people do jobs that are more interesting’’ — and pay better, too.

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Exclusive: Article Five not on the table despite Iran missile incident, NATO's Rutte says

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Exclusive: Article Five not on the table despite Iran missile incident, NATO's Rutte says
NATO is vigilant about events in the Middle East and ​the shooting-down of a missile ‌headed for Turkish airspace on Wednesday, but invoking Article Five is not on ​the table right now, the ​military alliance’s chief Mark Rutte told ⁠Reuters on Thursday.
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Iran continues firing missiles, drones at neighboring states, with multiple interceptions reported

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Iran continues firing missiles, drones at neighboring states, with multiple interceptions reported

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Iran launched a new wave of attacks on Thursday, with explosions reported in the region and Tehran threatening that the U.S. would “bitterly regret” sinking an Iranian warship.

Iran’s strikes on Thursday targeted Israel, American bases and countries in the region. Israel announced multiple incoming missile attacks as air raid sirens blared in Tel Aviv and Jerusalem.

Azerbaijan’s Ministry of Defense on Thursday said Iran used unmanned aerial vehicles (UAVs) in an attack on Nakhchivan International Airport and other civilian infrastructure. The ministry said the details of the attack and the capabilities of the UAVs were being investigated.

“The Ministry of Defense of the Republic of Azerbaijan strongly condemns the attacks carried out by the armed forces of the Islamic Republic of Iran against civilian infrastructure on the territory of Azerbaijan in the absence of any military necessity. The Islamic Republic of Iran bears the entire responsibility for the incident,” the ministry’s statement read.

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Explosions seen and heard in Azerbaijan as Iran launches retaliatory attacks across the Middle East. (East2West)

Iran has not acknowledged targeting Azerbaijan, despite the country’s ministry of defense pointing the finger at Tehran.

Qatar evacuated residents near the U.S. Embassy in Doha on Thursday, with its Ministry of Defense confirming that the country was “subjected to a missile attack” and that its air defense systems were able to intercept it. The ministry urged the public to remain calm and avoid unofficial information.

Abu Dhabi announced that its authorities were responding to an incident involving falling debris in ICAD 2, which is part of the Industrial City of Abu Dhabi. Six people, identified by Abu Dhabi as Pakistani and Nepali nationals, suffered minor to moderate injuries.

A plume of smoke rises over buildings in Doha, Qatar, on March 5, 2026. (Mahmud Hams/AFP via Getty Images)

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FORMER TOPGUN PILOT DECLARES IRAN MILITARY ‘OVER WITH’ AMID US AIR SUPERIORITY, BUT WARNS OF ANOTHER DANGER

Iran has carried out retaliatory strikes since the launch of Operation Epic Fury, with the latest wave coming one day after the U.S. sunk an Iranian warship, killing at least 87 Iranian sailors. Sri Lankan navy spokesman Cmdr. Buddhika Sampath said 32 people were rescued from the wreck and were admitted to a hospital.

Secretary of War Pete Hegseth defended the move during a news briefing at the Pentagon.

“An American submarine sunk an Iranian warship that thought it was safe in international waters. Instead, it was sunk by a torpedo — Quiet Death. The first sinking of an enemy ship by a torpedo since World War II. Like in that war, back when we were still the War Department, we are fighting to win,” Hegseth said.

Missile interceptions are seen in the sky on March 5, 2026, in Central Israel. (Alexi J. Rosenfeld/Getty Images)

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ISRAEL’S MILITARY RELEASES VIDEO SHOWING OBLITERATION OF IRAN’S MISSILE LAUNCHERS, DEFENSE SYSTEMS

Iranian leaders condemned the attack, with Foreign Minister Abbas Araghchi accusing the U.S. Navy of committing “an atrocity at sea.” Meanwhile, Ayatollah Abdollah Javadi Amoli appeared on state television and called for the shedding of Israeli and “Trump’s blood.”

“Fight the oppressive America, his blood is on my shoulders,” he said in a rare call for violence from an ayatollah, one of the highest ranks within the clergy of Shiite Islam.

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The U.S. and Israel launched the war on Saturday with strikes targeting Iran’s leadership, including the supreme leader, Ayatollah Ali Khamenei, who was killed. Iran’s missile arsenal and nuclear facilities were also hit.

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The Associated Press contributed to this report.

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Which Kurdish groups is the US rallying to fight Iran?

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Which Kurdish groups is the US rallying to fight Iran?

Iran has launched operations targeting Iranian and Iraqi Kurdish groups in the semi-autonomous Kurdish region in neighbouring Iraq as the regional war ignited by the United States and Israel entered its sixth day, with more than 1,000 people killed across the country.

State television, Press TV, reported early on Thursday that Tehran was striking “anti-Iran separatist forces”, referring to Iranian and Iraqi Kurdish groups believed to be based in mountainous, hard-to-reach areas near the Iran-Iraq border.

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Iranian missiles hit Sulaimaniyah city in the semi-autonomous Kurdistan region, according to local reports.

“We targeted the headquarters of Kurdish groups opposed to the revolution in Iraqi Kurdistan with three missiles,” Iran’s official IRNA news agency reported on Thursday, quoting a military statement. The Iranian military said earlier on Tuesday it used “30 drones” on Kurdish positions.

The attack comes just days after multiple publications reported that US President Donald Trump was in active talks with Iranian and Iraqi Kurdish groups, and that Washington hopes to use them to spur a popular uprising.

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Various Iranian Kurdish groups, which share close ties with Iraqi Kurds, have long opposed Tehran from their bases in northern Iraq and along the Iraq-Iran border. These groups reportedly have thousands of fighters between them.

Here’s what we know so far:

People gather near debris from a drone that fell onto a building near Erbil airport, amid the US-Israeli conflict with Iran, in the Ankawa district of Erbil, Iraq, on March 4, 2026 [Khalid al-Mousily/Reuters]

Why are Kurdish groups cooperating with the US?

US officials said the aim is to stretch Iranian forces and take out the remains of the military-dominated Iranian government, according to reporting by CNN.

There is also speculation that the groups could be supported to take control of northern Iran to create a ground buffer for Israeli forces, possibly streaming in from Iraq.

US-Israeli bombings have heavily targeted areas along the Iraq-Iran border since the start of the war on Saturday, possibly to degrade Iranian defences and allow Kurdish opposition groups to cross fully into Iran, according to a briefing by US-based think tank, the Soufan Center.

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The US has not ruled out sending ground forces, although analysts told Al Jazeera Iran’s rugged territory would make that very difficult.

If the US does support these groups against Tehran, it would mean that Washington is treating them like armed “players on a board,” Winthrop Rodgers, associate fellow at the UK think tank, Chatham House, told Al Jazeera.

INTERACTIVE - WHERE ARE THE KURDS - JAN19, 2026 copy-1768814414
(Al Jazeera)

Which Kurdish groups are there?

Neither the US nor Kurdish groups had confirmed any agreements by Thursday.

However, it is known that Trump has spoken to the leaders of two Kurdish groups in Iraq: Masoud Barzani, leader of the Kurdistan Democratic Party, and Bafel Talabani, leader of the Patriotic Union of Kurdistan (PUK), according to US publication, Axios. Talabani confirmed the call on Wednesday.

Trump also spoke to Mustafa Hijri, head of the Democratic Party of Iranian Kurdistan (KDPI), on Tuesday, CNN reported, quoting a Kurdish official.

Meanwhile, Iranian Kurdish rebel groups, which have thousands of fighters along the Iraq-Iran border, formed the Coalition of Political Forces of Iranian Kurdistan (CPFIK) alliance one week before the war broke out.

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The group issued statements at the start of the conflict, signalling imminent intervention and urging Iranian military members to defect. According to Israel’s I24News, thousands of its fighters were in Iran by Wednesday.

Here are the different groups:

Kurdistan Democratic Party: The ruling party in the semi-autonomous Kurdistan Regional Government (KRG). The party controls the capital city of Erbil as well as Duhok. It has historical ties with Iranian Kurdish groups.

However, the KRG is not eager to be seen as supporting attacks on Iran, even as Iranian drones have hit US assets in Erbil. On Wednesday, Kurdistan region President Nechirvan Barzani spoke with Iranian Foreign Minister Abbas Araghchi and told him his region “will not be part of conflicts” targeting Tehran.

In 2023, the two countries signed a security deal that saw Iraq promise to disarm and relocate Iranian opposition groups on its territory, although it appears many groups are still based there, reflecting the limited influence the government wields over them.

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Iraqi Kurds, who have close ties with both the US and Iran, are in a “difficult position”, said Rodgers.

“They are under tremendous pressure from a wide range of forces, including (pro-Iran) Iraqi militias. They will try to stay out of the conflict as much as they can, but that will likely prove impossible,” he said.

Patriotic Union of Kurdistan (PUK): The PUK is the official opposition in the semi-autonomous Kurdistan region and also nationally relevant as Iraqi President Abdul Latif Rashid is a member. In a statement on Sunday, Rashid urged dialogue and an end to the war. Iraq declared three days of mourning following the killing of Iran’s Ayatollah Ali Khamenei in US-Israeli strikes on Tehran on Saturday.

Coalition of Political Forces of Iranian Kurdistan (CPFIK): Formed on February 22, 2026, the group includes six Iranian Kurdish opposition groups seeking an independent state.

Kurdistan Democratic Party of Iran (KDPI) – Based in the Kurdistan region, the group has about 1,200 members and is proscribed as a “terror” group by Iran.

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Kurdistan Freedom Party (PAK) – Also based in Kurdistan, it has an estimated 1,000 members.

Kurdistan Free Life Party (PJAK) – A close ally of the Turkish opposition armed group, Kurdistan Workers’ Party (PKK), PJAK is proscribed as a “terror” group by Ankara. PJAK’s armed wing, the Eastern Kurdistan Units (YRK), is believed to have between 1,000 and 3,000 members, many of them women. It is based in the rugged Qandil Mountains near the Iran-Iraq border and in the semiautonomous Kurdistan region. It has launched numerous attacks on Iranian forces in the past decade. A recent Iranian strike reportedly killed one fighter.

Organisation of Iranian Kurdistan Struggle (Khabat) – It has an unknown number of fighters.

Komala of the Toilers of Kurdistan – Based in Iraq’s KRG, it has an unknown number of fighters.

Komala Party of Iranian Kurdistan (KPIK) – Also headquartered in the Kurdistan region, it has an estimated 1,000 fighters in 2017.

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PAK
A fighter from the Kurdistan Freedom Party (PAK) carries a rifle and gestures while standing on rocky terrain, at a training session at a base near Erbil, Iraq, on February 12, 2026 [File: Thaier Al-Sudani/Reuters]

What is the history of US involvement with Kurdish resistance groups in the Middle East?

Kurds are an ethnic minority spread across the Middle East with a shared language and culture. They do not have a state of their own and have historically been marginalised across countries – mainly Iran, Iraq, Syria and Turkiye.

For decades, several armed Kurdish groups have sought self-governance in Turkiye, Syria and Iran.

In Iraq, Kurdish nationalist groups gained some success during the 1991 Gulf War by working with the US, which helped establish the self-governing Kurdistan region of Iraq. The US Central Intelligence Agency (CIA) also trained and armed its army, known as the Peshmerga, after the US invaded Iraq in 2003. In 2005, the semiautonomous region was officially recognised in Iraq’s constitution.

Since 2017, Washington has also armed and trained the People’s Protection Units (YPG), a Syrian Kurdish militia that Turkiye lists as a “terror” group because of its links with the proscribed PKK. The group, which successfully resisted ISIL (ISIS), now forms the main component of the Syrian Democratic Forces (SDF). It controlled Raqqa and other ISIL strongholds.

However, when it began military clashes with Syrian forces under the President Ahmed al-Sharaa-led government last August, Washington turned away from the group and backed Damascus instead. In January this year, the SDF signed an agreement with the Syrian government to integrate into the government forces. In return, the Syrian government recognised Kurdish rights.

In Turkiye, meanwhile, the PKK, whose presence in northern Iraq has long been a source of tension with Ankara, declared a ceasefire in March 2025, after a call from its imprisoned leader, Abdullah Ocalan, to disarm.

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How does Kurdish resistance in Iran compare with others?

Iranian Kurds opposed the Iranian government even before the formation of the Islamic Republic in 1979, Rodgers said, and Tehran’s current weakness provides an opportunity for them to advance their political aims in the country.

However, the new coalition of multiple diverse groups is unprecedented, the analyst added, and their internal dynamics will be a key decisive factor in what role Kurdish groups will play in this war.

“Support from the US is helpful, especially in terms of targeting security forces’ infrastructure with air strikes, but they will likely be cautious about relying too much on Washington, especially from an administration as capricious and disorganised as Trump’s,” Rodgers said, noting how Washington abandoned the Kurds in Syria.

Unlike the split Iranian movements, Iraqi Kurds have long united to form a devolved government enshrined in the Iraqi constitution, built an advanced economy, and secured substantive relations with a wide range of foreign countries. That’s something Kurdish groups will also be hoping to establish in a democratic Iran, he said.

“I think it is unlikely that the Trump administration has made any commitments to the Iranian Kurds about supporting their political goals,” Rodgers said, adding that the US’s plan “does not look fully thought through at all”.

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