The AI investment boom is central to that story.Takeaways by The Dark Side of the Boom™America’s growth story is still unusually strong, but the real engine is shifting from consumer resilience toward productivity, capex and the AI buildout.The 2.8% productivity gain and muted unit labour costs are the best part of the story: they allow growth to remain firm without automatically forcing a new inflation problem.The labour-market headline is less clean than the 4.2% unemployment rate suggests. A shrinking workforce can lower unemployment even when hiring momentum is fading.Record equities are celebrating a real earnings and productivity upside, but the market is also pricing a lot of future AI payoff before the full return on that investment is proven.As America marks its 250th birthday, BMO Capital Markets economist Sal Guatieri argues there are still more economic reasons to celebrate than the market’s increasingly anxious mood might suggest.The first is straightforward: the economy is still growing at a pace that most developed markets would gladly take. Real GDP expanded 2.7% over the year to the first quarter, according to BMO’s figures, leaving the United States ahead of its own longer-run potential growth rate and well ahead of the rest of the G7. That does not mean every household feels prosperous, but it does mean the economy has remained far more durable than the recession calls that circulated so freely only a year ago.The second support is productivity. Nonfarm business productivity rose 2.8% over the same period, the strongest pace since 2024 and comfortably above the roughly 1.9% long-run average. That matters because productivity is the difference between an economy merely running hot and one that can grow without constantly turning wage gains into inflation pressure.The AI investment boom is central to that story. Business spending on computer hardware, software and data centres has reportedly risen 25% over the past year, as companies build what BMO describes as the modern equivalent of an AI interstate highway system. The market has understandably become nervous about the cost of that buildout, but the economic upside is that the spending is not confined to speculative equity narratives. It is beginning to show up in capital formation and, potentially, in output per worker.That productivity impulse is also helping corporate competitiveness. Unit labour costs rose only 0.5% over the past year, the smallest increase since 2019. For businesses, that is a powerful combination: stronger output without a matching surge in labour costs. For policymakers, it offers at least some hope that growth can remain firm without reigniting a full inflation spiral.The labour market remains another source of resilience, even if it is no longer as clean a story as the unemployment rate alone suggests. At 4.2%, unemployment is still only modestly above the multi-decade lows reached in 2023. But BMO rightly notes that the recent improvement has come more from a shrinking labour force than from booming hiring, with the labour force contracting by 2.1 million people, an unusually large decline outside the pandemic period. That is the first warning light beneath the fireworks: fewer layoffs are good, but a shrinking workforce is not the same thing as a broad hiring renaissance.Inflation is the next potential relief valve. With oil prices largely back near pre-war levels, BMO sees PCE inflation as having likely peaked just above 4%. Should fuel costs remain contained, inflation could move back toward the Fed’s 2% target within a year. That would lessen the need for further tightening and keep the possibility of rate cuts alive for 2027. The catch, as always, is that energy is only one moving part. A fresh oil shock, tariff pass-through or renewed wage pressure could still keep the Fed’s hand closer to the trigger than markets would prefer.Household balance sheets offer another reason not to become too gloomy. Debt-service payments accounted for just over 11% of disposable income in the first quarter, more than a percentage point below the long-run average. Much of that benefit reflects homeowners locking in cheap mortgages during the low-rate years, but the burden on consumer credit is also lighter than normal. That gives households more room to absorb higher prices, slower hiring or a period of elevated interest rates than many previous cycles would have allowed.Finally, equity markets remain at record highs. The Dow has pushed to fresh peaks, supported by strong earnings growth and the prospect that AI-driven productivity gains eventually feed through into corporate margins and profits. Valuations are rich, and the enthusiasm around AI is clearly running ahead of certainty in some corners of the market. Still, the bulls are not relying on a purely imaginary story. Earnings have been strong, investment is real, and the productivity case is becoming harder to dismiss.The broader point is that the American economy enters the second half of 2026 with genuine momentum: decent growth, improving productivity, manageable household debt, limited layoffs and a potentially better inflation path. But the celebration is not without a shadow. A shrinking labour force, expensive equities and an economy increasingly reliant on an enormous AI capital-spending cycle mean the margin for error is narrowing.For now, though, the economic fireworks are still going off. The question for markets is whether the sparks turn into a lasting productivity boom—or whether investors eventually discover that they have been paying peak prices for the view.