It makes growth look better and the job market look worse. Maybe an AI investment bust wouldn’t hurt so much after all.
By Greg Ip. Excerpts:
"Morgan Stanley now sees capital spending by the five largest AI “hyperscalers” topping $800 billion this year and $1.1 trillion next year. At 3.3% of gross domestic product, next year’s figure would exceed projected spending on national defense."
"inflation-adjusted GDP . . . grew a respectable 2% annualized in the first quarter. Beneath the surface, though, are two economies: AI and everything else."
"Personal consumption, the biggest component of GDP, grew a relatively muted 1.6%. Investment fell in housing, business structures such as office buildings and factories, and transportation equipment like trucks and aircraft. Meanwhile, investment soared 43% in tech equipment, 23% in software and 22% in data-center buildings."
"gross computer spending contributed 1.7 percentage points of the first quarter’s 2% growth. Net out imports, and that drops to just 0.4 point."
"AI is distorting: international trade. It’s why U.S. imports rose so much in the first quarter, causing the trade deficit to widen"
"The [S&P 500] index is up 7% since the start of the Iran war. Weighting all 500 companies equally, the index actually fell slightly."
"Private-sector layoff announcements are actually running below levels of a year ago."
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