The Labor Department releases September employment figures on Friday, and economists surveyed by Bloomberg expect payrolls to have risen by about 90,000, with unemployment holding at 4.1 percent. The job market looks steady. Pay doesn't. Inflation has outpaced workers' wages in recent months, and price increases have accelerated since the war with Iran began, eroding whatever gains paychecks had made.
The report includes a monthly update on average hourly earnings, a number that will show how far households are falling behind.
A Steady Market With Uneven Gains
The job market has held up through successive shocks from the pandemic, inflation, wars and tariffs. Hiring has slowed, though. Baby boomers are retiring at a notable pace, and immigration restrictions under the Trump administration have limited the number of people entering the workforce. Labor force participation among midcareer workers remains strong.
The gains aren't spread evenly. Employment growth has been concentrated in education, health care and social assistance, while manufacturing, finance and technology have lagged or lost jobs. Building the data centers that power artificial intelligence is creating jobs, but measuring AI-related job losses is difficult.
Growth Built on a Narrow Base
Mark Zandi, chief economist at Moody's Analytics, said AI accounted for a substantial share of U.S. economic growth this year. The latest government report put real gross domestic product growth at an annual rate of 2.3 percent in the second quarter. Zandi estimated that 0.6 to 0.7 percentage points, or perhaps 30 percent of inflation-adjusted growth this year, came directly or indirectly from the AI boom.
The stock market tells a similar story of concentration. The iShares U.S. Technology ETF, a rough proxy for AI-led tech stocks, returned 33.7 percent for the calendar year through Thursday. The ProShares S&P 500 Ex-Technology ETF returned 4.1 percent. In May, 10 technology companies made up more than 40 percent of the S&P 500's market capitalization. A major decline in AI stocks could hurt people who hold them in retirement funds.
The benefits also tilt toward the top. Rising wealth has helped the richest 20 percent of consumers drive spending this year, even as overall consumer sentiment declined. In February, Zandi estimated that "for every $1 increase in net worth, consumer spending ultimately increases by 2 cents." He said the wealth effect added a full percentage point to consumer spending growth and more than 0.7 percent to GDP growth in 2025. A market crash would reverse that, he said, and "the economy would take a hit."
Capital Economics, an independent research service based in London, issued a blunter warning on Tuesday: "There are growing signs that the A.I. equity market boom is in its final stages." It said high AI-driven stock prices had formed a "bubble" likely to burst before the end of next year. Corporate profits are high for now. Wall Street analysts estimated S&P 500 earnings grew more than 29 percent in the three months through September.
The Bill Comes Due in Bond Markets
The scale of the buildout is enormous. Goldman Sachs estimated in August that corporate spending on data centers, power supplies and infrastructure would total $1 trillion worldwide in 2026. Stijn Van Nieuwerburgh, a Columbia University business professor, presented a paper at the Brookings Institution late last month estimating that U.S. AI companies' capital expenditures could reach $10.3 trillion by 2032. That could average 3.63 percent of GDP each year, he estimated, "larger, relative to the economy, than the major U.S. canal, railroad, electrification, highway and telecommunications investment booms."
Financing it takes substantial debt, and higher rates make projects costlier. The 10-year U.S. Treasury yield rose as high as 5.34 percent on Thursday, its highest since 2002, before easing to about 5.24 percent. It ended the day at its highest level since 2007. French 10-year yields reached 4.92 percent, also the highest since 2002. Brent crude was above $100 a barrel, up roughly 40 percent since the conflict in the Middle East began in late February.
Mahmood Pradhan, a nonresident fellow at Bruegel and former deputy director of the IMF's European department, said, "The Middle East war has really turned everything around." Central banks are again raising rates, he said, which increases government costs and cuts the money available to support the economy if conditions worsen. Last month the Federal Reserve, the European Central Bank and the Bank of Japan all raised rates.
Safety concerns add another layer. Evan Hubinger, an Anthropic safety researcher, wrote on X that he believed the chance AI "could kill all humans" within the next decade was greater than 10 percent. President Trump has called such concerns a "hoax," though David E. Sanger, Jonathan Swan, Cecilia Kang and Dustin Volz reported that he worries a faltering AI boom could crash the stock market and quickly lead to a recession. Leaders of AI companies have called for slowing development until human safety can be assured, and "guardrails" are being discussed.
Why This Matters: Paychecks are losing to inflation while a big share of U.S. growth rests on one sector and on the spending of the wealthiest households. If the AI boom stalls, the fallout wouldn't stay on Wall Street. Zandi's own estimates show how directly the economy depends on asset prices, and retirement savers hold many of the stocks at risk. Meanwhile, rising bond yields raise borrowing costs for governments, which leaves less room for public support if conditions deteriorate. Pradhan made that point himself. France's struggle to pass a budget ahead of an April presidential election shows how tight fiscal margins have become. Whether guardrails on AI development and on financing the buildout get decided through public debate or after a downturn is still an open question.