The U.S. Labor Department will release September employment figures Friday. Economists surveyed by Bloomberg estimate payrolls rose by about 90,000, while unemployment held at 4.1 percent. Meanwhile, spending on artificial-intelligence infrastructure is lifting growth expectations and adding to bond supply as companies borrow to finance data centers and related projects.
Jobs and Uneven Gains
The job market has stayed strong. Unemployment has remained low through successive shocks from the pandemic, inflation, wars and tariffs. Hiring has slowed, though, as baby boomers retire at a notable pace and immigration restrictions under the Trump administration limit the number of people entering the workforce. Labor force participation among midcareer workers remains strong.
Job gains have clustered in education, health care and social assistance. Manufacturing, finance and technology have lagged or shed jobs. Building data centers that power AI is creating work, though measuring AI-related job losses remains difficult.
Workers’ pay hasn't kept pace with inflation in recent months. Prices accelerated after the war with Iran began, eroding pay gains. Friday’s employment report also includes a monthly update on average hourly earnings.
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.
A Narrower Market, Larger Risks
The technology boom has helped lift financial markets, but the gains remain concentrated. Through Thursday, the iShares U.S. Technology ETF, described as a rough proxy for AI-led technology stocks, returned 33.7 percent for the calendar year, compared with 4.1 percent for the ProShares S&P 500 Ex-Technology ETF. In May, 10 technology companies accounted for more than 40 percent of the S&P 500’s market capitalization.
The Vanguard 500 Index Fund’s biggest holdings are Nvidia, Apple, Microsoft, Amazon, Alphabet, Broadcom, Meta, Micron and Tesla, followed by JPMorgan Chase. All but JPMorgan are involved in AI development to some degree; Apple is described as a laggard. A steep drop in AI stocks could affect people whose retirement funds hold them.
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 those concerns a “hoax.” David E. Sanger, Jonathan Swan, Cecilia Kang and Dustin Volz reported that Trump worries a faltering AI boom could crash the stock market and quickly trigger a recession. AI company leaders have called for slowing development until human safety can be assured, while people discuss “guardrails.”
Debt and the Cost of Expansion
Capital Economics warned in an analysis Tuesday: “There are growing signs that the A.I. equity market boom is in its final stages.” The firm said high AI-driven stock prices had created a market “bubble” likely to burst before the end of next year. Corporate profits remain high: Wall Street analysts estimated S&P 500 earnings grew more than 29 percent in the three months through September, even as stocks fell close to their early-June price levels.
Goldman Sachs estimated in August that companies worldwide would spend $1 trillion on data centers, power supplies and infrastructure in 2026. Stijn Van Nieuwerburgh, a Columbia University business professor, estimated U.S. AI companies’ total capital expenditures could reach $10.3 trillion by 2032. He said the spending could average 3.63 percent of GDP each year and become the biggest infrastructure project in U.S. history.
Financing these projects takes substantial borrowing, and higher bond rates make AI projects more expensive. The 10-year U.S. Treasury yield climbed as high as 5.34 percent Thursday, its highest since 2002, before easing to about 5.24 percent; it finished the day at its highest level since 2007. Analysts and investors have tied rising yields to AI-driven growth expectations, inflation pressure and worries about government debt.
Mahmood Pradhan, a nonresident fellow at Bruegel and former deputy director of the European department at the International Monetary Fund, said, “The Middle East war has really turned everything around.” He said central banks were raising rates again, increasing government costs and reducing money available to support the economy if conditions worsened. The 10-year Treasury yield ended Thursday at its highest level since 2007.