The U.S. economy now faces a structural limit to growth that neither monetary policy nor business cycles can resolve. Jonathan O’Kane, Vice President and Head of Research at Chandan Economics, points out that basic labor supply math is setting a ceiling on economic expansion, forcing real estate investors to reconsider their expectations.
O’Kane explains that economic growth comes from two sources: increasing the number of people working or increasing the productivity of those workers. Demographic trends are making it harder to expand the workforce. Meanwhile, productivity gains have not accelerated enough to offset that shortfall.
“There are two things that can meaningfully impact our growth expectations, our economic capacity as an economy,” O’Kane says. “One, we either need more people doing productive things, working and operating in the economy, or two, those people need to be more productive.”
Both labor force growth and productivity are now moving in the wrong direction. Retirements are rising sharply as the baby boom generation leaves the workforce, and growth in native-born workers is too weak to replace these exits. At the same time, foreign-born labor force growth has turned negative. That growth had been expanding at about 5 percent year-over-year for several years.
The U.S. labor force had relied on strong growth in foreign-born workers to offset retirements and slow native-born growth, but that labor market support has faded. “When you have the acceleration of retirees, and you don’t have the growth of native-born workers to compensate at the same time that you see the foreign-born portion of the labor force declining on a year-over-year basis — and this had been the high-octane in the engine before — they’ve now turned negative,” O’Kane notes.
Productivity Alone Cannot Fill Gap
With labor force growth slowing, the economy is increasingly dependent on productivity gains to sustain expansion. O’Kane’s analysis shows that productivity would need to rise significantly to preserve current growth rates.
“If you have those two components, you’re going to need a whole lot of productivity growth just to make up for the loss in labor, or loss in labor growth, to have a more highly functioning economy,” O’Kane says.
So far, there is little evidence of the required productivity surge. While advances in technology and artificial intelligence are often cited as potential drivers, their impact on overall productivity has been limited and has materialized more slowly than many forecasts anticipated. Without a major jump in productivity, the economy faces what O’Kane calls a “speed limit” on growth.
This demographic ceiling directly affects real estate markets, which have traditionally operated under the assumption of steady economic expansion that supports higher occupancy and rent growth. If GDP growth is structurally capped by labor force constraints, demand for commercial and residential space may fall short of historical trends. Real estate investors must now reconsider occupancy rates, absorption projections, and rent growth forecasts.
Resilience Has a Growth Ceiling
Despite these constraints, the U.S. economy has shown notable resilience. From 2022 through 2025, real GDP growth remained between 1.8 and 2.5 percent annually, even amid a cost-of-living crisis in 2022, pandemic disruptions, and volatility from trade policy changes.
“The underlying resilience of the U.S. economy remains a marvel. To not have a baseline expectation of that growth continuing, especially in the face of all the volatility that it’s faced, would be short-sighted,” O’Kane says.
However, O’Kane warns that expecting faster growth from here is unrealistic. The demographic headwinds are significant and ongoing, meaning the economy is operating closer to its capacity limits than headline numbers might suggest. “Our growth expectations need to be more constrained as a result of that. If we’re in an economy that is operating on a knife’s edge, and we want that buffer to keep us away from that knife’s edge, that brings us a little bit closer to the knife’s edge,” he says.
Labor Market Signals What’s Ahead
O’Kane identifies the labor market as the key indicator for the economy’s direction, even as month-to-month data remains volatile due to frequent revisions. Total job additions in 2025 reached about 260,000, a figure equivalent to just a month and a half of average job growth from 2015 to 2019.
“We’re operating in a low-growth environment. A meaningful departure from that, whether it be on the high side or the low side, would be something that would update our view,” O’Kane says.
He also emphasizes the psychological nature of labor market dynamics. Job losses can trigger further layoffs as companies follow their competitors, creating a negative feedback loop. “The labor market is the most important thing going forward. It tends to be very psychological. Job losses beget job losses,” O’Kane says.
For real estate professionals, this means labor market data deserves equal attention alongside interest rates and construction activity. The structural limits on labor force growth will shape economic performance and, by extension, demand for real estate for years to come.
Rethinking Real Estate Assumptions
Labor force constraints have immediate consequences for real estate investment analysis. Underwriting that assumes GDP growth will revert to historical averages may be too optimistic. Those averages were built on labor force trends that no longer exist.
Development feasibility studies based on past absorption rates may also overestimate future demand. Labor supply, not just capital or consumer demand, is now the limiting factor. Markets that depend heavily on population and economic expansion may face greater challenges than those with stable, mature demand.
O’Kane’s analysis argues that real estate investors should factor demographic and labor force trends into their models as rigorously as they do interest rates or supply pipelines. This growth ceiling cannot be bypassed with monetary policy or short-term market timing.
Forecasting in a Slower Economy
The years ahead will require more disciplined forecasting and a willingness to adjust strategies in response to demographic realities. For investors and developers, this may mean prioritizing markets and asset types less vulnerable to slower workforce growth. Business plans should also build in flexibility to accommodate persistent low growth.
The era of relying on robust labor force expansion to drive economic and real estate gains is over. Recognizing the limits imposed by demographics is now essential to making sound investment decisions that reflect the true pace of economic potential.
