Continued US Economic Expansion & Jevons Paradox in the context of Artificial Intelligence
05/07/2026“The US economy remains in expansion, but is still sensitive to policy and exogenous shocks. Recession likelihood is low over our three-year forecast period. We believe the primary macro risk is persistent inflation rather than outright recession. Price pressures appear to be sticky, calling into question future monetary policy easing. We expect the Fed to take a wait-and-see approach regarding changes in the fed funds rate as the economy endures volatile energy prices and their potential effects on a currently healthy labor market. However, consumer sentiment is depressed, with both major confidence measures still low by historical standards. In our view, that weakness reflects affordability fatigue, political and geopolitical noise, and continued sensitivity to energy prices more than it signals imminent contraction. More broadly, economic activity continues to hold up better than sentiment surveys suggest, with consumer credit card data also pointing to ongoing spending resilience. This contrast helps explain why we believe growth can remain intact even as confidence is low and market volatility stays elevated.
We anticipate continued expansion over our three-year forecast period, with growth remaining near its long-term trend. Business investment is expected to support the economy, driven by changing supply chains and domestic reindustrialization. Business spending tied to productivity, automation, and AI-related capital expenditure continues to be strong, despite policy uncertainty and higher input costs that have created a more uneven path. Durable goods orders have remained positive and generally resilient, even with periodic volatility, suggesting that underlying business demand and capital spending have not rolled over. This points to an economy that is still generating sufficient investment activity to sustain growth.” (Asset Allocation Quarterly Second Quarter 2026 dated April 29, 2026 by The Asset Allocation Committee of Confluence Investment Management LLC)
"The Jevons Paradox is an economic theory stating that an increase in efficiency in the use of a resource does not lead to a decrease in its consumption. Instead, because the resource becomes cheaper and more effective to use, the total demand for it actually increases, often offsetting any initial savings." (Jevons Paradox – Definition and Explanation dated February 17, 2026 by Tejvan Pettinger) Recently, Torsten Slok, Partner and Chief Economist, with Apollo has been writing and citing his assessment that AI will increase employment and business formation instead of the consensus view that AI will radically increase unemployment. A few of those articles can be found here, where he writes about The Jevons Employment Effect From AI, The Radiologist Paradox, and AI's Most Exposed Industry Keeps Hiring.
We anticipate continued expansion over our three-year forecast period, with growth remaining near its long-term trend. Business investment is expected to support the economy, driven by changing supply chains and domestic reindustrialization. Business spending tied to productivity, automation, and AI-related capital expenditure continues to be strong, despite policy uncertainty and higher input costs that have created a more uneven path. Durable goods orders have remained positive and generally resilient, even with periodic volatility, suggesting that underlying business demand and capital spending have not rolled over. This points to an economy that is still generating sufficient investment activity to sustain growth.” (Asset Allocation Quarterly Second Quarter 2026 dated April 29, 2026 by The Asset Allocation Committee of Confluence Investment Management LLC)
"The Jevons Paradox is an economic theory stating that an increase in efficiency in the use of a resource does not lead to a decrease in its consumption. Instead, because the resource becomes cheaper and more effective to use, the total demand for it actually increases, often offsetting any initial savings." (Jevons Paradox – Definition and Explanation dated February 17, 2026 by Tejvan Pettinger) Recently, Torsten Slok, Partner and Chief Economist, with Apollo has been writing and citing his assessment that AI will increase employment and business formation instead of the consensus view that AI will radically increase unemployment. A few of those articles can be found here, where he writes about The Jevons Employment Effect From AI, The Radiologist Paradox, and AI's Most Exposed Industry Keeps Hiring.