The market spent the week digesting a modestly hotter PPI print, a pullback in NVIDIA after earnings, and a move in the 10-year Treasury yield below 4 percent. Equities have softened in the second half of February, hardly unusual seasonally, but beneath the surface the story is far more constructive than the headlines suggest. Eight of the nine U.S. style boxes are positive year-to-date. Bonds are rallying. Overseas markets are surging. This is not a market in distress; it is a market rotating.
I felt compelled this week to respond to the increasingly popular narrative that artificial intelligence will trigger widespread job destruction and a macroeconomic downturn. That view misses the central insight of growth theory and two centuries of economic history: productivity gains expand output, incomes, and ultimately demand. If AI were to double productivity—a simplifying illustration—today’s GDP could be produced in half the time. Workers would not choose to work half as much; they would likely work somewhat less and earn significantly more.
We have seen this dynamic repeatedly—from mechanization in agriculture to automation in manufacturing to the digital revolution. Some occupations disappear. Others emerge. Real wages track productivity over time, and higher incomes generate new categories of spending—better services, better goods, more leisure, more health care, more travel. The macroeconomic absorption mechanism is powerful. AI is not an apocalypse; it is a productivity accelerator, and can read my full Special Edition piece here.
This week’s corporate headlines underscore the transition. Layoff announcements grab attention, but they must be kept in scale. Even large percentage cuts at individual firms are small relative to a 160-million-person labor force. Meanwhile, the higher-frequency labor indicators remain stable. Expectations for this week’s payroll report center around roughly 50,000 to 100,000 new jobs—well below the immigration-fueled surges of prior years but consistent with a slower-growing labor force. If real GDP continues to expand near 3 percent, as several trackers suggest for the first quarter, that arithmetic implies rising productivity. You cannot grow output at that pace with sharply slower labor-force growth unless output per worker is increasing.
