The U.S. economy is showing a growing split: output and investment remain strong, but labor-force growth is slowing and hiring is weak, leaving inflation, growth and interest rates unusually uncertain.

That divergence is visible in the latest activity data: real GDP grew at a 3.4% annualized rate in the third quarter and private domestic demand rose 4.9%, while employers added just 29,000 jobs in September and unemployment edged up to 4.2%; low hiring and quitting rates also point to limited chances for workers to change jobs.

Productivity may help explain how output is expanding with little additional labor: it rose 2.2% over the year through the second quarter as output grew 2.5% and hours worked increased just 0.2%, though economist Gad Levanon says AI’s contribution remains unproven.

The labor squeeze could deepen as an aging population and slower immigration bring labor-force growth close to zero in 2026, according to Federal Reserve researchers; fewer workers alongside continued retiree spending, particularly on healthcare, may add inflationary pressure.

Inflation data offer a mixed picture: annual PCE inflation rose to 3.6% in September from 3.4% in August, even as prices increased at a 2.1% annualized pace in the third quarter, down from 5.0% in the second; private-sector wages rose 3.1% over the year, but benefits climbed 3.9%, including health benefits up 6.4%, and inflation-adjusted wages fell 0.6%.

Costs and supply are also being shaped by tariffs, immigration restrictions and the U.S.-Iran war, which has disrupted energy markets; Brent crude averaged $121 a barrel in the week ending October 23, about 70% above its $71 prewar level.

Investment is shifting toward data centers and power infrastructure even as other construction weakens: August construction spending fell 1.7% year over year, including declines of 4.8% in residential and 19.2% in manufacturing construction, while office construction rose 24.6% and power construction increased 8.5%.

After the Federal Reserve held rates steady, short-term Treasury yields fell while longer-term yields rose; inflation-adjusted yields accounted for about half of the six-basis-point increase in 10-year yields and 71% of the seven-basis-point rise in 30-year yields, moves that could reflect stronger growth expectations, tighter policy or increased risk compensation.

AI investment could ultimately expand productive capacity, but building it requires substantial energy, materials, capital and specialized labor, adding near-term demand and potential price pressure; the central question is whether productivity gains can offset these supply constraints, since monetary policy cannot directly create workers, lower tariffs or increase energy production.