AI Boom Saved US Economy From Recession, Economist Says

The ongoing artificial intelligence (AI) boom has likely averted a recession in the United States, according to top economist David Rosenberg. He suggests this technological surge is significantly influencing economic stability by attracting substantial investor capital.

Rosenberg estimates that approximately 50% of all corporate investment is now directed towards AI-related initiatives. This segment is experiencing an 18% annual growth in real terms, a stark contrast to the decline observed in capital spending within the ‘old economy’.

This situation mirrors aspects of the dot-com era, where capital shifted towards building data centers rather than residential homes. Such a diversion contributes to the ongoing housing shortage and affordability crisis.

Understanding the K-Shaped Economy

The current economic landscape, characterized by a ‘K-shaped economy,’ lacks the broad consumer strength seen during the internet bubble period. Rosenberg argues that without the AI boom, the economy would almost certainly be in recession, given several underlying weaknesses.

• Weaknesses in the housing sector remain apparent.
• Declines are visible in auto sales.
• Contraction is noted in non-tech manufacturing.

Recent data supports this view, showing the US economy’s growth rate decelerated to an annualized 1.5% in the second quarter from 2.1% in the first quarter. Additionally, the economy unexpectedly shed 23,000 jobs in July.

Credit Markets: The First Warning Signal

Rosenberg predicts that the credit market will be the initial indicator of the eventual downturn in the AI trade, preceding stock investors. He points to early signs such as increasing financing costs and a dramatic widening of credit default swap spreads.

These early indicators are reminiscent of the period directly preceding the 2008 financial crisis, suggesting potential vulnerabilities ahead for the AI-driven economic expansion.