The U.S. economy is displaying a Jekyll-and-Hyde duality, with soaring artificial intelligence investments masking deeper struggles faced by ordinary Americans. Last week, inflation reports suggested the Federal Reserve is lagging behind, yet Treasury yields remained stable. Bond investors seem to recognize that the inflation is driven by supply-side issues, particularly energy prices, which are not easily resolved by interest rate hikes.
The AI sector is booming, with technology giants spending at unprecedented rates to build data centers, power infrastructure, and semiconductor capacity. Goldman Sachs estimates global AI-related investment could hit US$800 billion this year and exceed US$1 trillion annually later this decade. This surge is creating jobs and economic activity but may be obscuring the broader economic weakness.
Meanwhile, Main Street America is struggling. Consumers are cutting back on spending as inflation erodes purchasing power, and the conflict with Iran has pushed energy prices higher. Real average hourly earnings have dropped 0.7 percent over the past year, forcing many Americans to work longer hours just to maintain their standard of living.
The housing market highlights this divide, with existing home sales near post-financial-crisis lows and a record imbalance between sellers and buyers. Affordability has deteriorated to the point where many prospective buyers cannot afford to purchase homes.