Charles Steindel

State labor markets were fairly stable in July. One state (Maryland) reported a statistically significant increase in jobs, and one state (New Jersey) clocked a significant decline. A full 10 states saw statistically significant drops in their unemployment rate, though none was larger than .2 percentage points. The highest unemployment rates were in  DC (5.9%), Connecticut (5.2%), Oregon (5.2%), California (5.1%), Nevada (5.0%), and Washington (5.0%). Nebraska, New Hampshire, Hawaii, Vermont, North Dakota, and South Dakota had unemployment rates under 3.0%, while  South Dakota’s 2.0% was the lowest in the nation.

Puerto Rico’s unemployment rate moved up to 6.0% and the island’s job count moved up by 2000.

State Labor Markets in July 2026

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Andrew Cates

_The world is being pushed to invest more than it has in decades._

**A world on autopilot**
Every few months the International Monetary Fund publishes a projection of the world economy, and the Blue Chip panel of forecasters, along with other bodies, does something similar each month; together they help to set the consensus against which everything else is judged. It describes a world returning gradually to normal: global growth a little above 3%, inflation drifting back to target, and US policy rates continuing to ease from their peaks. Its most consequential feature is one that is easy to miss, because it sits in an accounting identity rather than being stated as a view: investment in the advanced economies is projected to remain close to 22% of GDP for the rest of the decade, essentially flat, with national saving tracking it (chart below). The large external imbalances — the US deficit and the surpluses of China, Germany and the oil exporters — are expected to persist more or less unchanged, and the real interest rate that balances saving against investment drifts gently lower. It is, in short, a forecast of continuity, and this piece argues that continuity may well be the wrong assumption.

260819AC1.jpg

Chart 1: Advanced economies — gross national saving and investment, % of GDP (IMF WEO, Apr 2026)

**Why investment must rise**
Set against that flat projection is a list of demands on the world's capital that is neither short nor easily deferred: decarbonising and electrifying the energy system; the grid capacity that artificial intelligence, electrification and reshoring are all drawing on at once; adaptation to a hotter, less stable climate; the data centres and robotics of the technology build-out; the critical minerals and water on which much of it depends; the reshoring of supply chains; higher defence spending, already underway across Europe (and, as Haver colleagues [Peter D’Antonio](https://www.haver.com/authors/peter-d-antonio) and [Shashwat Indeevar](https://www.haver.com/authors/shashwat-indeevar) set out in [Efforts to Mitigate Military Risk Have Unintended Consequences](https://www.haver.com/articles/efforts-to-mitigate-military-risk-have-unintended-consequences), with consequences that run wider than the headline numbers); and the pressure of ageing populations, which pushes firms to substitute capital for increasingly scarce labour. Most of these demands are, in large part, non-negotiable, and they bear on an advanced world whose investment rate is already low by its own historical standards. The point is not that the rich world should invest at the 40%-plus rate of a still-industrialising China. China's rate reflects the extensive build-out of a capital stock still equipping a fast-growing, urbanising economy; the advanced task is different in kind — not to widen a young capital stock but to transform a mature one, retiring the capital of the old economy and building the new that energy, technology, minerals and defence now require, while deepening capital per worker as labour grows scarce. That points to a rate below China's, but perhaps well above the one the consensus assumes: the level of investment appropriate to today's conditions has arguably risen.

**The corporate anomaly — and its reversal**
To see why that matters, it helps to use the framework of the flow-of-funds accounts, in which the financial balances of the four sectors — households, companies, government and the rest of the world — must sum to zero: if one sector spends more than its income, another has to lend it the difference. Within that framework sits an unusual feature of the past two decades. In textbook terms the corporate sector is a net borrower, taking household savings and turning them into productive investment. Since the early 2000s, however, companies across the advanced economies have done the reverse, running persistent financial surpluses — generating more cash than they invested and returning the difference to shareholders through dividends and share buybacks. This corporate saving was an important, if under-appreciated, feature of the low-rate environment: the counterpart of investment that, vigorous though it has been, has run below what corporate cash flow could support, a contributor to the global saving glut and to the long decline in the equilibrium real interest rate (often labelled r*), and, through buybacks and the search for scarce assets, a support to asset prices.

This is why the shift now appearing in the data matters. In several of the major economies the corporate financial balance has begun to move from surplus towards deficit; Germany and France have already crossed into deficit, with others are close behind (see chart below). If this proves structural rather than temporary — as the investment needs set out above push firms to spend more than they earn — then a sector that supplied the world with saving for two decades becomes a net user of it instead. And it does so at a time when governments, already running large deficits, are in no position to take up the slack.

260819AC2.jpg

Chart 2: Non-financial corporate financial balance, % of GDP — 2010s average versus latest

This is not yet a story about corporate fragility. As I argued in June (see [This Isn't 1999](https://www.haver.com/articles/this-isn-t-1999-but-that-doesn-t-mean-there-s-nothing-to-watch)) the health of corporate balance sheets is exactly what distinguishes today from the leverage-fuelled boom of the late 1990s: US companies, in particular, have been investing while still generating more cash than they spend, financing themselves from profits rather than debt. That remains true, and it is reassuring for financial stability. But a surplus that reflects financial strength is also, in flow-of-funds terms, a corporate sector saving more than it invests — strength that has coexisted with investment running below what that cash flow could support. The shift now beginning is not a sign of weakness but its opposite: a financially sound corporate sector starting to put that strength to work, and moving from surplus towards deficit as it does. The risk it raises is not a balance-sheet bust but a macro one — as corporates stop supplying the world's saving and begin to absorb it, the claim on global capital rises.

**Where the saving is — the glut, and China**
If the advanced economies are to invest more than they save, the shortfall must be financed from abroad — and the world's surplus saving is concentrated rather than evenly spread. Two decades ago Ben Bernanke described a "global saving glut": a large pool of desired saving built up in emerging Asia and among the oil exporters, flowing outward and holding down interest rates worldwide. That glut has not disappeared; it has become more concentrated. China now saves around 42% of its national income, roughly twice the advanced-economy rate, and because it does so in the world's second-largest economy the sums are very large. China's share of world saving has risen from about a twentieth at the turn of the century to more than a quarter today — over eight trillion dollars a year, comfortably more than the United States (see final chart below). The Gulf oil exporters add a further layer. This is the pool that any global increase in investment would ultimately draw on, and the IMF expects it neither to grow much faster nor to shrink.

260819AC3.jpg

Chart 3: The world's saving, US$ trillion a year, by region (IMF WEO, Apr 2026)

**The price**
This is where the tension lies. The consensus projects a rising claim on the world's capital that does not appear in its own numbers, alongside a pool of saving that is expected to stay broadly fixed. If investment rises while that pool is static and governments remain stretched, something has to adjust; and if no sector is willing to change its behaviour, the adjustment falls on the price of capital. The real interest rate, which fell for a generation as abundant saving met limited investment demand, is being pushed structurally higher, and long-term real yields are already at their highest in two decades. On this reading, the long period of cheap capital is coming to an end.

If that shift holds, it would be felt wherever an asset is valued by discounting future income — which is to say almost everywhere. The four-decade tailwind of falling rates that lifted bonds, equities and property alike would become a headwind, and returns would increasingly have to come from income rather than from rising valuations; the owner of real, cash-generating assets would tend to fare better than the leveraged holder of long-duration ones. Those, though, are conclusions for a more considered analysis. The point here is a simpler one: the world is likely to want more capital than it is currently set up to supply, and the competition to secure it is only beginning.

The Contest for Capital

Peter D'Antonio

Shashwat Indeevar

The world has become more fragmented politically in the past decade, which has heightened global risk and uncertainty. The diminished sense of security has caused many countries to increase military spending. While this may be a rational response for individual countries, collectively, the rise in military spending has been alarming and seems to be leading the world toward even more risk and uncertainty. This in turn may feed the need for more security. In addition, the devotion of so much of the world’s resources to military spending may be damaging for the global economy.

According to the Stockholm International Peace Research Institute (SIPRI), world annual military expenditure reached $2.8 trillion (in constant 2024 terms) in 2025. That figure represented a 41 percent increase in the past ten years. However, half of that rise occurred in the past three years. We looked at the SIPRI Military Expenditure dataset (available in Haver’s **GLSECTOR** database) to understand how and why military spending is changing across countries and regions.

**Worldwide gains in military spending**
The rise in military spending has been widespread. Between the years 2022 and 2025, 45 of the top 50 countries in terms of military spending posted increases, with an average gain among that group of 41.8 percent. NATO spending (excluding the US) jumped by 44.7 percent, while non-NATO military spending increased by 29.2 percent.

Surprisingly, US military spending was essentially flat during this time. As a result, US military spending declined as a share of world spending by 6.6 percentage points to 33.5 percent. However, the Trump Administration has proposed a $1.5 trillion military budget for 2027, a roughly 60 percent increase from the 2025 spending listed in Figure 1. If that budget is enacted, then in 2027 the US's increase alone would be equivalent to 20 percent of 2025's entire world total. And we know that other countries both in NATO and Asia are ramping up spending as well.

260818PS1.jpg

**Spotlight on Europe**
The most notable trend in these data has been the meteoric rise in military spending in Europe since the start of the Russia-Ukraine War. As the chart shows, European military spending has nearly doubled since before the war, in 2021. At first, spending by Russia and Ukraine skyrocketed. But since then, the rest of Europe (essentially the European NATO countries) has been ramping up military spending as well (see Figure 2).

260818PS2.jpg

The notable increase in spending by European NATO nations has accounted for 39 percent of the global rise from 2022 to 2025. More recently, partly as a result of a push from President Trump at the start of his second term in 2025, NATO committed to a new defense investment plan. NATO members agreed to increase their military expenditures to 5 percent of GDP annually on core defense requirements (3.5 percent) as well as defense and security related spending (1.5 percent) by 2035. This is a significant increase from their previous target of 2 percent of GDP.

The rise in military spending as a percent of GDP has already begun in parts of Europe, especially among those countries that that feel vulnerable to Russia. As of 2025, the highest military burden among NATO members has been taken on by Poland (4.5 percent), Latvia (3.6 percent), Estonia (3.4 percent), Norway (3.3 percent) and Denmark (3.3 percent) (see Figure 3). All of these countries share a border with Russia, except for Denmark, which is boosting spending to shore up vulnerabilities in Greenland.

While Eastern Europe is taking on the larger relative economic burden, Western Europe still pays the larger bill. In absolute terms, Germany, United Kingdom, France and Italy account for 20 percent of NATOs spending at $304.7 Billion (in constant 2024 terms). Meanwhile, Russia and Ukraine have military burdens of 7.5 percent and 39.5 percent of their respective GDPs.

260818PS3.jpg

**A closer look at Asia**
NATO is not the only set of countries ramping up military spending. From 2022 to 2025, Chinese military expenditures have increased by 22.2 percent, focused on modernization and its regional claims. India has seen steady growth amounting to a 12.1 percent increase over the same time. India is motivated by dual-front deterrence on its borders with China and Pakistan. Adding to that is India’s self-reliance initiative (Atmanirbharta in Defense), which aims to harness domestic defense production, increase R&D, and reduce imports.

Meanwhile Japan saw the largest military spending increase in Asia, rising 49.6 percent. It contends with growing concerns about China’s strategic dominance, escalating tensions over Taiwan, and North Korean missile tests. Japan also announced a policy change in December 2022 to increase defense spending from its historical level of around 1 percent of GDP to 2 percent by FY2027, supported by a ¥43 trillion five-year defense spending plan. The rest of Asia followed suit, by increasing spending by 15.6 percent (see Figure 4).

260818PS4.jpg

**Possible effects on the global economy**
The recent rise in military spending could lead to even more military spending as perceived risks escalate. At the same time, the sharp increase in resources devoted to military around the world could well have deleterious effects on the global economy. Unless governments cut spending elsewhere, which seems unlikely, global government budgets will command an increasing share of economic output, leaving the private sector with a smaller share. This could hinder productivity growth and limit living standards.

Importantly, increased borrowing for military purposes means that these governments are dissaving at a much higher rate. At a time when borrowing needs are already skyrocketing as a result of the surge in AI investment, the drain on savings posed by rising military spending may pressure the investment-saving balance even more. The savings used to finance the AI investment has to come from somewhere. The combination of increased investment and drains on savings could in turn push global interest rates higher. The recent rise in global yields may partly reflect this pressure.

European countries may feel an economic pinch from the dramatic rise in military spending, especially countries bordering Russia. Take Poland for example. Its military burden sits at 4.5 percent in 2025, financed in part through a budget deficit of roughly 7 percent of GDP. Debt-to-GDP has risen from 48.8 percent to 59.7 percent between 2022 and 2025. As a result, Moody's and Fitch Ratings have changed their outlook on Polish sovereign debt to negative while affirming their long-term ratings. Rising military spending in the Baltics is adding to fiscal deficits, albeit on a smaller scale. The question is whether the attendant strains on finances ends up creating new economic problems in Europe and elsewhere.

Efforts to Mitigate Military Risk Have Unintended Consequences

Joseph G. Carson

It has been argued that AI could usher in "10x of the Industrial Revolution at 10x the speed." Yet, for AI to deliver on its growth potential for the economy, not just for a select group of companies, it needs to create jobs, lots of them- to generate worker income and spur consumption growth. So far, the records for growth, jobs, and productivity are unimpressive; however, to be fair, they are far from the final scorecard.
 
In the first half of 2026, even with double-digit annualized gains in business spending on technology equipment and intellectual property (AI), the economy saw an annual growth rate of 1.75%, with real consumer spending rising by 1.8%, the creation of 450,000 payroll jobs, and productivity growth of about 1%. Various factors impacted that growth and job performance, with AI emerging as the most significant influence.
 
AI is reportedly already managing or assisting with large volumes of white-collar tasks, allowing some companies to reduce their headcount. But the future impact could be more significant in scale and breadth. AI is designed to perform tasks traditionally done by humans, whereas the Industrial Revolution was a massive job creator.
 
Predicting the impact of AI on the total number of employed individuals is challenging. Nonetheless, if AI enables companies to downsize their workforce or eliminates the necessity to expand it, this could significantly harm overall economic performance.
 
This isn't a pessimistic view; it's simply basic arithmetic. Real consumer spending accounts for 70% of overall GDP growth (add another 3% for housing), while all types of business investment spending are less than 15%. If real consumer spending decreases by 100 basis points due to sluggish job growth, investments in AI models and infrastructure would need to increase by 3X or 4X above the current rate to maintain the same GDP growth rate.
 
Is it possible? A surge in AI investment of this magnitude would far exceed most companies' current cash flows, requiring unprecedented borrowing from the private sector. Yet, then the real question with AI is whether such an investment is essential, considering AI might impede the growth of its main market, the consumer, due to stagnant job growth.
 
It's crucial to find a balance where AI enhances GDP output and productivity without adversely affecting the job market to the point where consumer spending significantly decreases. However, it's uncertain where such a trade-off exists.
 
These issues will not be settled today, next month, or even next year. Historically, infrastructure booms and new technologies take years before their economic and financial benefits become evident. Nonetheless, all past innovations have ultimately created more jobs than they eliminated. For AI to be truly successful, it must create more jobs than it removes, and the responsibility to prove this lies with AI.

Artificial Intelligence: Implications for Growth, Jobs & Productivity

Paul L. Kasriel

There continues to be talk about how high-income households are carrying the economy. Is this new? The Bureau of Labor Statistics (BLS) annually surveys households regarding their expenditures in the aptly-named Consumer Expenditure Survey (CES). **The latest BLS Consumer Expenditure Survey is for 2024**. So, we do not know what went on in 2025 and so far in 2026. But what we do know from the 2024 CES is that higher-income households continue to spend more than lower income households – duh. But what we also know is that in 2024, things were close to or at their 1984-2024 medians with respect to average annual nominal expenditures compared to aggregate expenditures. To wit, in 2024, average annual nominal expenditures for the bottom 20% income quintile for households compared to the total average expenditures of all income quintiles was 8.9% versus a median of 8.8%. The comparable figure for the top 20% income quintile for households was 38.3% versus its 38.3% median. These data as shown in the chart below.

260809PK1.jpg

So, higher income households continued to spend more on average than lower income households in 2024. This is _not_ news. Perhaps things have changed radically in 2026. Perhaps. Let me know when man bites dog. That will be _real_ news!

State Labor Markets in July 2026

Charles Steindel

More Viewpoints

The Contest for Capital

Efforts to Mitigate Military Risk Have Unintended Consequences

Artificial Intelligence: Implications for Growth, Jobs & Productivity

Higher Income Households Spend More than Lower Income Ones – So, What’s New?