By Chris Combs, Chief Investment Officer, Silicon Valley Capital Partners
January 30, 2026
The U.S. economy is showing signs of an under‑appreciated shift, one that reminds me of the late‑1990s productivity renaissance, but with very different engines powering it. Back then, it was the commercialization of the internet. Today, it’s a mix of AI‑driven capital formation, energy abundance, revived industrial capacity, and a labor market that’s cooling, but for the right reasons.
Here are my five takeaways on what’s happening, why it matters, and the lessons policymakers should take from history.
1. Productivity is quietly surging, and reshaping the inflation narrative
The most important economic story of the past year may be the one getting the least airtime: productivity is rising fast.
Nonfarm labor productivity jumped 4.1% in Q2 2025 and 4.9% in Q3, the strongest two‑quarter stretch in years. Even better, unit labor costs fell, a rare and powerful signal that the economy is expanding its capacity rather than overheating.
This dynamic is almost exactly what happened in the late 1990s, when productivity accelerated faster than the official data first showed. Later revisions revealed the Fed had underestimated the economy’s true capacity.
Why it matters:
Rising productivity allows the economy to grow faster without igniting inflation, and it gives the Federal Reserve more room to cut interest rates if the labor market softens.
Sources: BLS 2026; Reuters 2026
2. The AI‑infrastructure boom is the biggest capital cycle since the dot‑com era
If the 1990s were defined by fiber‑optic cables and server rooms, the 2020s are being defined by AI data centers and semiconductor fabs.
Data‑center construction hit record highs in 2025, with estimates suggesting U.S. spending exceeded $50 billion. These are energy‑hungry, hardware‑dense facilities that require massive capital investment upstream and downstream: power infrastructure, chips, cooling systems, transmission, and advanced software.
Meanwhile, the CHIPS Act has spurred historic semiconductor investment, reversing decades of offshoring. Multiple next‑generation fabs are under construction across Arizona, Texas, New Mexico, Idaho, and New York.
Why it matters:
This is capital deepening at scale, more (and better) tools per worker, which historically drives persistent productivity gains.
Sources: ConstructConnect 2025; Wolf Street 2025; Electronic Design/SIA 2025
3. Energy abundance is providing a structural economic tailwind
One of America’s greatest competitive advantages in this new cycle is something old‑fashioned: cheap, abundant energy.
U.S. crude‑oil production hit 13.6 million barrels per day in 2025, a record. Natural‑gas output and LNG exports, meanwhile, continue to scale. And although electricity demand is rising at the fastest four‑year clip since 2000, driven largely by data centers, the EIA (Energy Information Administration) forecasts that supply will keep pace.
That’s crucial. It means the AI boom isn’t overheating the power grid or spiking input costs.
Why it matters:
Stable and affordable energy reduces inflation pressure everywhere from manufacturing to logistics to cloud computing.
Sources: EIA 2025; EIA 2026; Reuters 2025
4. The labor market is flattening, opening the door to rate cuts
The labor market is cooling, but not collapsing. Payroll growth has slowed. Wage pressure is easing. Yet prime‑age labor force participation remains near its highest level in two decades, particularly for women.
Economists sometimes call this a flattening labor curve: more labor supply available just as demand cools. In other words, a softer labor market without the inflationary bite.
Given falling unit labor costs and rising productivity, this creates a rare scenario:
the Fed can cut rates without risking a renewed inflation wave.
Why it matters:
A careful recalibration toward lower rates would support employment, squarely in line with the Fed’s dual mandate, without compromising the progress made on inflation.
Sources: Brookings 2025; BLS/FRED 2025; Morgan Stanley 2025; SIEPR 2026
5. Policymakers should remember what the 1990s actually taught us
The late‑1990s productivity boom left two lessons policymakers would be wise to recall:
Lesson 1: Don’t confuse supply‑driven growth for overheating.
Fed models repeatedly predicted inflation that never arrived because they underestimated productivity. Premature tightening risked slowing a genuine economic expansion.
Lesson 2: Low inflation ≠ low financial risk.
Greenspan warned in 1999 that stable prices can mask growing speculation. We are seeing echoes of this today in parts of tech, data‑center real estate, and private credit.
This cycle calls for measured rate cuts, rigorous data awareness, and macro‑prudential guardrails, not reflexive tightening.
Sources: Federal Reserve testimony 1999; St. Louis Fed 2005; FOMC transcripts (1990s)
References
Bureau of Labor Statistics (2026) US Productivity and Costs – Q3 2025 Revised. Washington, DC: BLS.
Reuters (2026) ‘US worker productivity grew at fastest pace in two years’, Reuters, 29 January.
ConstructConnect (2025) Data Center Construction Starts Report – October 2025.
Wolf Street (2025) ‘Construction Spending on Data Centers, Factories, Powerplants, and Office Buildings’, Wolf Street, 17 November.
Electronic Design / Semiconductor Industry Association (2025) US Fab Capacity Poised to Triple by Early 2030s.
Energy Information Administration (2025) Short‑Term Energy Outlook – October 2025. Washington, DC: EIA.
Energy Information Administration (2026) Short‑Term Energy Outlook – January 2026. Washington, DC: EIA.
Brookings Institution (2025) Seven Economic Facts About Prime‑Age Labor Force Participation.
Federal Reserve Bank of St. Louis (2025) Prime‑Age Labor Force Participation Series (FRED).
Stanford Institute for Economic Policy Research (2026) The U.S. Economy in 2026: What to Watch.
Morgan Stanley Research (2025) 2026 U.S. Economics Outlook: Emerging From Policy Uncertainty.
Federal Reserve (1999) Testimony of Chairman Alan Greenspan: Monetary Policy and the Economic Outlook.
Federal Reserve Bank of St. Louis (2005) Productivity Measurement and Monetary Policymaking During the 1990s.