Why the U.S. economy is stronger than you might think

The U.S. economy should grow faster than consensus expects because resilient employment, healthy consumer finances and an unprecedented AI investment boom outweigh inflation and geopolitical risks.

• Consensus GDP growth estimates are above 2%, but Jared Franz forecasts 2.5% to 3% growth in both 2026 and 2027, ahead of other developed economies.
• The August 2026 economy added 162,000 jobs, three times consensus expectations; unemployment was 4.1%, inflation was 3.4% versus the Fed’s 2% target, and further rate hikes may be possible without sharply damaging employment.
• Even an average of 75,000 new jobs per month would support roughly 2% annualized consumer-spending growth, while wages were rising 3.7% to 4.1% year over year in August, generally faster than inflation.
• Consumer spending reached a record $16.8 trillion after rising 0.2% in the latest month, although lower-income households were weakened by energy prices and consumer prices had risen about 30% since the COVID-19 pandemic.
• AI-related capital expenditure is estimated at $800 billion in 2026, mainly for U.S. data centers; Franz believes measured GDP growth may understate the boom’s effect by 0.5 to 1 percentage point, while Amazon, Alphabet, Meta, Microsoft and Oracle continue competing for AI leadership.

Takeaway: Franz sees a mid-cycle economy supporting equities, with the S&P 500 up 14.1% year to date and 18.6% over 12 months as of September 25, 2026, but warns that an Iran-war escalation, higher oil or interest rates, disappointing AI returns and extreme market concentration could reverse the favorable outlook before a possible late-cycle phase in 2028.