Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / The AI Economy Is Rewriting the American Dream for Blue-Collar Workers
Transcript
- Lucas: So there's a headline from Tuesday that's been sticking with me — CNBC ran a piece titled 'The AI economy is rewriting the American Dream — and blue-collar workers are poised to win.' I think that's worth unpacking because it runs against a lot of the conventional wisdom. Luna: Doesn't it though. Most people hear 'AI' and immediately think of white-collar jobs being automated — copywriters, paralegals, coders. So why would blue-collar workers be the winners? Lucas: Right, and I'll admit I was skeptical at first. But when you look at the data we have as of mid-May 2026, there's a case building. Let's start with the job openings numbers. The latest JOLTS report, for March, showed openings down to about 6.866 million — that's a drop from roughly 6.922 million the month before. So the labor market is cooling, but not collapsing. Luna: And average hourly earnings ticked up slightly — to $37.40 from $37.35. So wages are still rising, even if slowly. Lucas: Exactly. And that's the backdrop. Now, the argument goes that AI and automation are actually more likely to augment blue-collar jobs rather than replace them outright — think of a factory worker using an ai assisted quality control system rather than being replaced by a robot. Meanwhile, a lot of routine white-collar work — data entry, basic accounting, some legal research — can be fully automated. Luna: So the 'winner' framing is about relative demand. If AI eats the routine white-collar tasks, the premium on in-person, hands-on work might actually rise. Lucas: Precisely. And we're seeing early signs in the GDP data. Real GDP growth annualized came in at 2 percent for the first quarter of 2026 — up from just 0.5 percent in the previous quarter. That's a meaningful acceleration, and a lot of it is being driven by investment in equipment and structures, not just consumer spending. Luna: Which ties back to blue-collar demand. Building data centers, installing solar panels, retrofitting factories — all of that requires electricians, welders, heavy equipment operators. Lucas: Right. And the ai driven productivity gains could actually boost wages for those roles, because the technology makes each worker more valuable. There's a paper from the National Bureau of Economic Research last year that found exactly that — in manufacturing, ai assisted workers saw a 14 percent bump in output per hour, and their wages adjusted upward over time. Luna: Let's talk about what this means for inflation, though. If wages are rising and demand for blue-collar labor is strong, doesn't that put upward pressure on prices? Lucas: It does, but maybe less than you'd think. The 10-year breakeven inflation rate — which is the market's expectation for average inflation over the next decade — stands at 2.39 percent as of yesterday. That's actually down from 2.44 percent a week ago. So the bond market is not pricing in a wage-price spiral. Luna: Because ai driven productivity gains could offset the wage increases. More output per hour means more supply, which is disinflationary. Lucas: Bingo. So the story goes like this: AI automates some white-collar work, lowering costs in services. It also boosts productivity in blue-collar sectors. The net effect could be higher real wages for a broad swath of workers without triggering runaway inflation. That's the optimistic case. Luna: But there's a less optimistic case, too. What about the workers who get displaced? The JOLTS data shows openings are still well above pre-pandemic levels, but the pace of decline is worth watching. If AI adoption accelerates too fast, we could see a mismatch. Lucas: Absolutely. The unemployment rate is currently at 4.3 percent, flat from March. That's historically low, but if we start seeing layoffs in white-collar sectors without enough blue-collar jobs to absorb them, that number could rise. The Fed is clearly watching this — Kevin Warsh gets sworn in as Fed chair tomorrow, and he's been vocal about the need to monitor labor market dynamics closely. Luna: And he's coming in at a time when the Fed funds rate is at 3.62 percent — effectively flat. The market is pricing in a rate hike in July, according to the Yardeni commentary from earlier this week. So there's tension between the optimistic productivity story and the hawkish bond market. Lucas: Yeah, and that's really the macro debate right now. If AI truly does boost productivity, the Fed might not need to hike as aggressively. But if the bond vigilantes — as Yardeni calls them — push yields higher preemptively, the Fed could be forced to act. The ten-year Treasury yield is at 4.59 percent, down slightly but still elevated. Luna: Before we go further, we should note — this show is ad-free and free to access, and that's a deliberate choice. If today's episode was useful to you and you want to keep it that way, buy me a coffee dot com slash fexingo helps. That's buy me a coffee dot com slash fexingo. Lucas: Yeah, it really does make a difference. Now, back to the blue-collar story — one sector that I think exemplifies this is construction. With interest rates where they are, you'd think residential construction would be slowing. But nonresidential construction spending is actually up, driven by the CHIPS Act and infrastructure bills. That's creating demand for skilled trades. Luna: And those are jobs that can't be outsourced or easily automated. You can't have a robot framing a house in rural Montana — at least not yet. Lucas: Right. So the 'American Dream' angle is that these jobs offer a path to the middle class without a four-year degree. Average hourly earnings at $37.40 annualize to about $78,000 a year for full-time work. That's meaningful, especially in lower-cost areas. Luna: But there's a geographic concentration issue. A lot of these jobs are in the Sun Belt and industrial Midwest. If you're in a coastal city where the cost of living is high, that wage doesn't go as far. Lucas: That's a fair point. And it ties into the broader question of whether AI will exacerbate regional inequality. The data we have on GDP by state isn't out yet for 2026, but the nominal GDP number — $31.856 trillion — masks a lot of regional variation. Luna: Let's bring it back to the Fed. Warsh takes over on Friday. What's his likely stance on this? Lucas: He's been described as a 'bond market hawk' — he famously warned about inflation in 2021 before most others did. But he's also a supply-side thinker. He might be more open to the idea that ai driven productivity could allow the economy to grow faster without overheating. So his first few speeches will be crucial. Luna: And the market will be watching the CPI data closely. April's CPI came in at 332.4, up from 330.29 in March. That's a 0.6 percent month-over-month increase, which is a bit hot. Core CPI, excluding food and energy, was 335.4, up from 334.17. Lucas: Yeah, those numbers reinforce the 'sticky inflation' narrative. But the personal consumption expenditures price index — the Fed's preferred measure — was at 130.3 in March, up from 129.48. Core PCE was 129.3, up from 128.9. So there's a deceleration in the core PCE compared to CPI, which the Fed will take some comfort from. Luna: So the big picture is: AI is reshaping the labor market in ways that could benefit blue-collar workers, but the inflation picture is still uncertain, and the bond market is nervous. Warsh steps in at a pivotal moment. Lucas: Exactly. And we'll be watching the JOLTS data for April when it comes out next month — if job openings continue to decline while wages hold steady, that could signal that the productivity story is real. If openings plunge and wages stall, that's a recession warning. Luna: For now, the unemployment claims data is encouraging — initial claims fell to 209,000 from 212,000. So the labor market is still tight. Lucas: That's the key takeaway. The economy is in a transition period. The AI revolution could lift blue-collar workers, but it's not guaranteed. The macro data over the next few months will tell us which path we're on.