AI investment boom may be papering over US economic cracks: Mike Dolan
SPY•AI-related investment has contributed about a third of US economic growth over the past couple of years, but aggregate investment has remained near 22% of GDP as declines in other areas offset technology spending. A New York Fed economist said government deficits accounted for 1.75 percentage points of the 2.4-point increase in the current account deficit since the pandemic.
1. Investment in context
Most estimates attribute about a third of US economic growth over the past couple of years to the AI buildout, while AI-related goods made up almost a quarter of US imports last year. Yet aggregate investment has stayed basically unchanged at just under 22% of GDP for eight years; it averaged 21.3% in the five years before the pandemic and 21.5% in the three years since ChatGPT launched.
2. Spending offsets
New York Fed economist Julian di Giovanni said rising investment in information technology, equipment and software has been offset by declines in factory construction, residential investment and spending on structures and equipment outside data centers and technology. Government dis-saving accounted for 1.75 percentage points of the 2.4-point increase in the current account deficit since the pandemic, while falling private savings contributed about half a point and business investment contributed next to nothing.
3. Risks if AI slows
Di Giovanni said fiscal policy changes have been the major driver of current account dynamics, with a smaller role for private saving and no discernible investment channel. He added that debt- and equity-financed spending could change the picture, while the article raises the possibility that a sudden slowdown in AI, a financing shock or a major stock sell-off could weigh on the economy.
