The US economy is showing signs of broad re-acceleration ahead of the latest jobs report, with manufacturing, AI investment and retail sales all picking up. But decelerating real wage growth caps the momentum and takes pressure off the Fed to raise rates.
A strong US jobs report would mark the fourth straight upbeat reading after a long stretch of decline and stagnation in net new jobs. The question is whether that strength is confined to hiring or points to something wider — and the answer, for now, is a qualified yes.
Manufacturing and AI investment turn up
The re-acceleration reaches beyond the labour market. The ISM Manufacturing PMI has moved above 50 in 2026, signalling expansion after three years of contraction, and now sits almost level with its services counterpart.
Underlying AI spending has added to the tailwind. Michael Pearce of Oxford Economics sees a second wave of AI-driven investment, this time in business spending on computers and related tools rather than just hyperscalers building data centres. AI investment surged again in the final quarter of 2025, and retail sales have continued to accelerate in recent months despite weak consumer sentiment.
Weak wages cap the momentum
The good news carries a darker backdrop. While the economy is adding jobs, real wage growth has been decelerating, and there is little reason to expect it to pick up meaningfully even as petrol prices soften. The quit rate remains relatively weak, the hiring rate has stabilised at a historically low level, and job openings have trended sideways for two years.
According to the Financial Times, Pearce argued the pattern may reflect improving labour supply as much as recovering demand: "there's no sign yet that this improvement in job growth is fuelling a tightening"
Less pressure on the Fed
Soft wages make it harder for the economy to sustain its pace — but they also make inflation less of a worry and ease the pressure on the Fed to tighten. Don Rissmiller at Strategas thinks the signs of recovery are not strong enough to justify a full tightening cycle, noting that a single rate hike has little logic on its own.
The futures market prices in one rate hike, and on some days a little more. But with the Fed offering no forward guidance, Rissmiller cautioned against reading too much into that signal.
Source: Financial Times
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