Photo credit: Yucel M
The midterm election results and October jobs report are the two main data points economists will be watching this week. Polling forecasts and prediction markets expect Democrats to retake control of the House, and quite possibly the Senate as well. Such a spell of divided government — with President Trump and congressional Democrats unlikely to collaborate on policy — has historically been welcomed by financial markets because it curbs polarizing legislation from either party. However, the U.S. economy is in the midst of a generational AI buildout, the future of which could be reshaped by the powers that be in D.C. So economic uncertainty could remain high, even if the election turns out as expected.
That AI tailwind powered the solid 3.4% annualized GDP growth reported last week for the third quarter and has been (along with healthcare) one of the two bright spots behind a stable labor market this year. AI-adjacent industries have added jobs at a far faster rate than the overall labor market since 2022, and ahead of the October jobs report, we expect that to continue. Industries ranging from architectural and engineering services (designing data centers) to construction of nonresidential buildings (building the data centers) to utilities (powering them) are all growing robustly.
We don’t have a reason to dispute the consensus forecasts for October: a payroll gain of 75,000 and the unemployment rate ticking down to 4.1%. Not only is AI a major force behind the labor market stabilizing and the real economy holding up nicely, but it’s also likely an underappreciated factor reshaping public opinion. The Economist analyzed how former Trump voters living near a data center have begun to shift sharply against the president’s party, a sign that Trump’s unambiguously pro-AI stance is disconnected from public opinion.
Robust consumer spending driven by stock gains
Yet it’s that AI buildout that is powering a resilient real economy. “Underlying GDP” — focusing on just business investment and consumer spending — grew a stunning 4.8% in the third quarter. And it’s not just the data center capex or consumers spending more on higher energy prices. Inflation-adjusted consumer spending, excluding energy, is growing a respectable 2.7% year over year. So despite the negative “vibes” and discontent about affordability, they haven’t translated into a slowdown in business and consumer demand. The wealth effect on consumption — or how the AI-powered stock market translates to more spending, often by richer households — is significant. And our research shows that this has also been one of the main engines of job creation over the last two years.
Inflation remains stubbornly high
The public’s sour assessment of the economy, the GDP data be damned, is due in large part to stubbornly elevated inflation. The September numbers released last week on the Fed’s favored inflation gauge showed that trend hasn’t changed, and it’s why the Fed is likely to raise rates again later this year. Excluding food and energy prices, which have soared since the Iran war began, “core” inflation has trended upward, to 3.1% year over year, up from 2.7% in November 2025. And, again, that excludes gas prices, which have risen strongly in recent weeks and correlate closely with a falling approval rating for President Trump.
So, to recap: AI is behind the strong “hard” data, like GDP growth, soaring business investment, and steady consumer spending (juiced by the stock market). And AI is helping prop up decent job growth, albeit concentrated in the data center boom and healthcare, with little employment growth elsewhere. And yet coinciding with this AI boom is a resurgence of inflation — in large part due to tariffs and the Iran war — putting voters in a decidedly anti-incumbent mood. This high inflation likely to push interest rates higher, which would squeeze the AI investment boom further and risk the b-word emerging as the dominant economic and political story of 2027: “bubble.” Higher rates and an anti-AI regulatory environment seem like safe bets next year. Taken together, it’s no wonder tech stocks have tumbled in recent weeks.
What does this mean for recruiters?
All this is not meant to imply that an AI bubble bursting will cause an imminent recession. If anything, we are sanguine about the U.S. economy in the short run. Enough AI and healthcare momentum is built into the labor market to prop up overall demand, even if white-collar workers and young job seekers continue to suffer in a “low-hire, low-fire” equilibrium that likely won’t change anytime soon. But this week’s elections could mark an inflection point in the dominance of the AI story in the current macroeconomic cycle. And the spillover effects — triggered by a stock market correction and a regulatory backlash against data centers — seem likely to lead to a more skittish investment environment, with second-order psychological effects on consumer spending. When consumers have had enough of the uncertainty and begin to pare back, the labor market will follow.
For recruiters, this means that, for better or for worse, hiring across sectors has been closely linked to the AI economy. Watch tech stocks and data center spending over the coming months: If the AI boom loses steam, expect hiring to cool in the sectors it has propped up, from construction to engineering, and in consumer-facing industries as falling stocks hit household spending. Meanwhile, healthcare should prove more resilient.