Economy still growing, data center construction driving growth, economist says
An economist from the University of Arkansas, Mervin Jebaraj, presented an economic outlook stating that data center construction is a primary driver of U.S. business investment and GDP growth. He noted that approximately $50 billion was invested in new data centers in the U.S. in the last quarter, largely due to the rise of artificial intelligence. The report also covered employment trends, consumer sentiment, and inflation driven by energy prices.
Mervin Jebaraj, director of the Center for Business and Economic Research at the University of Arkansas, delivered an economic overview and outlook at the Quarterly Business Analysis Luncheon in Fayetteville. He highlighted data center construction as a significant driver of U.S. business investment, attributing much of the anticipated GDP growth from 2025 to 2026 to this sector amid the rise of artificial intelligence.
Jebaraj reported that around $50 billion was invested in new data centers in the United States in the last quarter, emphasizing that this figure represents only building costs, excluding equipment. He contrasted this business-driven growth with more stagnant consumer spending. The economist also discussed employment trends, noting a moderation in U.S. job growth, rising unemployment rates in the U.S., Arkansas, and Northwest Arkansas, and a unique "no-hire, no-quit, no-fire" economy.
The presentation touched upon the potential impacts of AI on the job market, suggesting that it might increase demand for services by reducing prices rather than causing widespread job losses immediately. Jebaraj also addressed consumer spending, which continues to increase but at a moderated pace due to rising energy prices, leading to flat or declining inflation-adjusted wages. He pointed out that consumer sentiment, according to the University of Michigan index, has fallen to levels lower than during the Great Recession, though consumer spending has continued despite this.
Finally, Jebaraj discussed persistent inflation above the Federal Reserve's 2% target, leading to projections of potential federal funds rate hikes. He noted that rising mortgage rates, tied to the 10-year Treasury yield, are dampening home construction, although home sales and prices in Northwest Arkansas continue to rise, with multifamily vacancy rates also increasing as new complexes open.