AI Is Distorting Practically Everything About the Economy

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."