Charles Steindel

November was another soft month for state labor markets. No state had a statistically significant change in payroll employment, though the raw increases in California (32,500). New York (17,100),  as well as the decline in Illinois (9,700) look to be of some note. However, no state appears to have had a change as large as .2 percent. In the October numbers, the federal cuts were reflected in large, most likely statistically significant, drops in DC, Maryland, and Virginia.

State unemployment rates in November were generally, though not universally, higher in November than in September (there are no unemployment figures for October, due to the federal government shutdown). Delaware and West Virginia’s unemployment rates were .4 percentage points higher in November than in September, and a number of other states saw increases of .3 percentage points.  Hawaii’s rate dropped .3 percentage points. The highest unemployment rates were in  DC (6.5%), California (5.5%), New Jersey (5.4%), Nevada (5.2%),  New Jersey (5.2%), Oregon (5.2%), and Michigan (5.0%).  Alabama, Hawaii,  North Dakota, South Dakota, and Vermont had unemployment rates under 3.0%, while South Dakota’s 2.1% was the lowest in the nation.

Puerto Rico’s unemployment rate was unchanged at 5.7% (remarkably, there is an October unemployment rate estimate for Puerto Rico) and the island’s job count rose by 1,700.

State Labor Markets in November in 2025

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

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Sharmila Whelan

Taiwan stands to benefit disproportionately from the current AI-led global semiconductor upcycle. Its domestic semiconductor ecosystem has expanded at remarkable speed, more than tripling over the past decade—from about US$69bn in 2014 to US$166bn in 2024—and is estimated to approach US$200bn in 2025. This growth is no accident. Taiwan sits at the heart of the world’s most advanced logic-chip production, with demand increasingly driven by AI and high-performance computing. Its dominance reflects early specialisation, rapid scaling, and an unmatched ability to protect customers’ intellectual property.

At the centre of this ecosystem is TSMC—Taiwan’s true national treasure—which continues to consolidate its lead at the technological frontier. While near-shoring projects in Japan, Germany and the US are often framed as diversification, in practice they reinforce Taiwan’s position rather than weaken it. TSMC’s latest commitment to build five additional fabs in Arizona illustrates this point clearly. Leading-edge R&D, pilot runs and sub-7nm process know-how remain anchored on the island. Overseas fabs are best understood as extensions of Taiwan’s production model, not substitutes for it.

The foundry race is no longer about sheer scale but about leadership at the cutting edge—and that leadership still belongs to Taiwan. A November 2025 report noted that Nvidia sources 100% of its top-tier GPUs from TSMC, including advanced 3nm and emerging 2nm-class production. AI and high-performance computing now account for more than half of TSMC’s wafer revenue, with AI processors alone on track to reach around 20% of sales by 2028.

Taiwan’s strength is not limited to foundries. Its fabless sector benefits from unusually tight coupling with domestic manufacturers, rapid design-to-manufacturing feedback loops, and a dense ecosystem in which suppliers, advanced packaging, talent and fabs are co-located. This structure enables faster iteration and innovation than is possible in more geographically fragmented semiconductor hubs.

That said, the industry has become increasingly concentrated, and this brings risks (Figure 1). The foundry sector’s share of output has risen from 41.5% in 2014 to an estimated 63.4% in 2025. By contrast, other subsectors—IC design, packaging, testing and related activities—have seen their shares decline. The memory segment has shrunk particularly sharply, from 11.8% of output in 2014 to just 3% in 2025, leaving Taiwan heavily dependent on Korea in this area. IC packaging’s share has also roughly halved to around 7%.

260206SW1.jpg

Source: Taiwan & The Global Semiconductor Supply Chain, Taipei Representative Office, Singapore

Additional vulnerabilities include reliance on foreign chip designs and imported manufacturing tools, as well as geographic concentration that increases exposure to natural disasters and geopolitics. Still, Taiwan’s cost competitiveness remains a decisive advantage. Even with subsidies, mature-node fabs in the US cost roughly 10% more to build and up to 35% more to operate than those in Taiwan, while Europe faces energy costs roughly double those of the US. Mainland China enjoys lower costs but lacks access to leading-edge technology. Taken together, these dynamics explain why Taiwan remains indispensable to the global semiconductor industry—and why it stands to benefit most from the AI-driven investment surge now underway.

**Taiwan’s economy and the business cycle**

What always strikes us is how closely synchronised Taiwan’s business cycle remains with its export cycle—something unusual for a mature, ageing economy that, according to standard economic theory, should by now be a dissaving society (Figure2). But this apparent anomaly speaks to a core Austrian insight, borne out repeatedly by history: growth is fundamentally endogenous, not exogenous.

260206SW2.jpg

Source: Haver Analytics & Westbourne Research

Exogenous growth models emphasise demographics, capital accumulation and productivity gains, and predict diminishing returns as economies mature and workforces age. Endogenous growth theories instead stress innovation and specialisation. These reduce production costs, expand markets, enable firms to scale, and foster the emergence of new technologies, industrial clusters and ecosystems—ultimately generating increasing returns. History is full of small countries with limited populations that became economic powerhouses by following this path. Taiwan is simply another example.

Turning to the data, Taiwan ranks at the top of the latest business-cycle indicator assessment. Four of the five indicators are positive; the only negative signal is the cost of capital, which remains too low for the current phase of the cycle. As in the US and Japan, Taiwan’s corporate profit upcycle strengthened through last year. Average returns on equity for the overall market, the technology sector and TSMC are all above their pre-Covid seven-year averages (Figure 3).

260206SW3.jpg

Ideally, it would be useful to examine an ex-tech returns series to gauge the health of the broader corporate sector, but such data are unavailable. In any case, the question may be beside the point. For investors, Taiwan is fundamentally a technology play. It is not about domestically focused stocks—at least not until the economy enters a full boom phase in which investment, construction and consumption all grow well above trend, supported by rising incomes and credit expansion.

Rising profitability in the technology sector is already driving a renewed investment upswing (Figure 4). The integrated-circuit sector alone accounts for roughly 20% of GDP, underscoring its macroeconomic importance. In 2024, Taiwan’s semiconductor industry generated around US$165bn in output, equivalent to approximately 21% of GDP.

260206SW4.jpg

Monetary conditions remain extremely supportive. The two-year real lending rate, at around minus 6.6%, is not only well below the 2% lower threshold but also the lowest in Asia. This is a concern—but not yet a critical one. The credit cycle remains subdued, suggesting that artificially low interest rates are neither encouraging firms to borrow aggressively for long-gestation projects nor pushing households into excessive debt. That said, the central bank is clearly behind the tightening curve, even if inflation remains steady at around 1.6% year-on-year (Figure 5).

260206SW5.jpg

Business-cycle indicators point to continued strength, a view reinforced by high-frequency data. Exports, export orders and manufacturing activity are all trending higher (Figure 6). Consumption is also reviving as the tech-led investment upswing spills over into the broader economy, tightening labour markets and lifting wage growth (Figure 7). In short, the outlook for the year ahead is bright. Growth should accelerate, and the business cycle is likely to broaden beyond investment to consumption.

260206SW6.jpg

260206SW7.jpg

**Where to invest?**

That Taiwan’s equity market would outperform the region in 2024 and perform strongly again in 2025 has been one of our best calls. We continue to maintain an overweight position in equities this year, particularly in the technology sector—and is certainly holding onto her TSMC shares.

As always, we remain focused on business-cycle fundamentals, which for Taiwan remain firmly positive. Taiwan is also a central beneficiary of the global semiconductor upcycle and the AI-driven “Sixth Wave” discussed last week. Risks remain—not least US import tariffs under a possible Trump administration—but the US and Taiwan appear to be edging toward a deal that would reduce tariffs from 20% to around 15%, in line with Korea and Japan.

Pressure on Taiwanese technology firms to invest in the US should be seen as enhancing rather than undermining the industry’s global position. It expands markets, diversifies investment, and reduces geopolitics-related operational risk. Taiwan Inc clearly understands this. Companies are already diversifying away from China in favour of other markets—a sensible strategy when put into perspective. In 2024, over 55% of Taiwan’s foreign direct investment assets were still located in China, compared with just 9% in the US, according to IMF data.

Taiwan

From Foundries to Fortunes: Taiwan in the AI Era

Yet again, the Federal Reserve Bank of Philadelphia’s state coincident indexes in December were  generally soft. In the one-month changes, Kentucky and Missouri were the only states with increases above .50 percent. 16 were down, with West Virginia off by more than one percent. Over the three months ending in December, Missouri was the only state with an increase higher than 1 percent (Idaho was up .99 percent), while eight fell, with Delaware off more than 1 percent and West Virginia down more than two percent. Over the last twelve months, four states were down (Delaware by more than two percent), and seven others saw increases of less than one percent. Seven states saw increases of 3 percent or more, with Alabama’s 3.91 percent at the top.

The independently estimated national estimates of growth over the last three and twelve months were, respectively, .38 and 1.84 percent. The three-month reading seems to be in line with what the state numbers would have suggested, while the twelve-month one appears to be lower.

State Coincident Indexes in December 2025

Andrew Cates

**_Excess, innovation and why this boom may still have room to run_**

Recent weeks have seen financial markets gripped by a shifting mix of narratives. A weaker US dollar, rising rate volatility and renewed geopolitical uncertainty have revived talk of a tentative “sell America” trade, as investors reassess US exceptionalism after several years of outperformance. At the same time, global equity markets have remained remarkably resilient, supported in large part by continued optimism around artificial intelligence and the powerful investment cycle it has unleashed.

Against this unsettled backdrop, a familiar question has returned to the centre of market debate: are prices being driven by fundamentals, or by faith? With artificial intelligence, that conversation has clearly arrived. Equity markets — particularly in the United States — have surged on the back of a relatively small group of AI-exposed firms that now account for a striking share of index gains. Valuations increasingly rest on the assumption that AI will deliver a sustained uplift to productivity, profits and long-run growth. Investors are no longer debating whether AI will transform the economy; instead, they are debating how quickly — and how completely — those gains will materialise.

**Lessons From History**

History offers a useful starting point. Truly transformative technologies almost always arrive alongside periods of financial excess. Railroads, electricity, telecoms and the internet all produced extraordinary investment booms that ultimately reshaped economic structures, even as they destroyed large amounts of capital along the way. The presence of a bubble never meant the technology was flawed. It meant expectations moved faster than cash flows, infrastructure deployment and balance-sheet reality. AI fits this historical pattern uncomfortably well.

In this environment, narrative often dominates near-term profitability, and that is typically how transformative technologies diffuse rapidly across the economy. But where bubbles become truly dangerous is not via investor enthusiasm itself, but in the financing structures that accompany large infrastructure build-outs. Equity investment in diversified firms with strong balance sheets is fundamentally different from debt-financed bets on long-lived assets whose viability depends on uncertain demand and rapidly evolving technology. Yet we are already seeing significant capital being channelled into data centres, energy infrastructure and specialised AI facilities, increasingly funded through project-level vehicles and long-dated financing. These investments rest on assumptions about sustained utilisation, manageable energy costs and technological continuity — assumptions that inevitably carry risk.

This should feel familiar. The late-1990s telecoms boom was not undone because fibre optics were useless, but because capacity was financed almost entirely with leverage long before revenues caught up. When pricing power collapsed, investors absorbed enormous losses, even as the infrastructure went on to support the digital economy that followed.

**The Macro Dimension**

However, there is also a macro dimension in this debate that deserves more attention, and this is where today’s AI boom still looks somewhat different from past excesses. The chart below contrasts private non-residential investment in the US with the financial balance of non-financial corporations. During the dot-com era, corporate investment surged at the same time as the corporate sector moved deep into financial deficit. Firms were spending far beyond internal cash flows, and increasingly reliant on external financing — particularly debt — to fund speculative expansion. That combination of soaring investment and widening financial imbalances was a classic Minsky-style warning sign.

260129AC1.jpg

Today’s picture looks more restrained. Investment in advanced technology and AI-related infrastructure has risen meaningfully, but it has not been accompanied by anything like the same degree of system-wide corporate dissaving. Corporate financial balances, as of Q3 2025, remain much closer to neutral, reflecting strong cash flows at large firms funding much of the investment internally. This does not mean risk is absent. Pockets of debt-financed AI infrastructure are clearly expanding and deserve close scrutiny. But at the aggregate level, the US economy does not yet exhibit the hallmark of bubble periods that morph into systemic crises: widespread leverage-driven overinvestment.

That healthier balance-sheet backdrop suggests that even if parts of the AI ecosystem experience sharp valuation corrections, the macroeconomic aftershocks may be more manageable than in previous technology busts. Historically, bubbles become crises not simply because some investments fail, but because leverage transforms losses into economy-wide financial stress.

So are we in an AI bubble? Almost certainly in parts of the ecosystem. Expectations are lofty, narratives are powerful and capital is flowing rapidly. But history also suggests that bubbles around transformative technologies often inflate for longer — and go further — than many of the sceptics expect.


Are We In An AI Bubble?

Viewpoints: January 2026

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State Labor Markets in November in 2025