The U.S. economy seems robust, with growing GDP and consumer spending. However, Economist Gregory Daco warns of a polarized reality behind the scenes, with only a few pillars driving growth. AI investments and stock market valuations overshadow vulnerabilities for smaller businesses and households.
Jobs report shows slow hiring pace, inflation near normal levels, and real GDP up 4.4%. Consumer spending remains solid, but the economy depends on a narrow group of winners, increasing downside risk. Manufacturing PMI above 50 signals expansion, but growth varies across sectors.
Economist Daco notes uneven growth that averages can’t capture, rejecting a simple K-shaped story. Polarization spans income levels and sectors, with higher-income groups driving spending. AI giants invest heavily, while median-income households struggle, highlighting a weak foundation.
The economy relies on a few pillars like AI-driven capital spending, increasing vulnerability. Consumer spending outpaces disposable income growth, leading to lower savings and more credit. A reset in AI expectations could trigger stock repricing, cooling off the wealth effect and weakening growth engines.

Read more at Yahoo Finance: Ernst & Young drops a blunt reality check on the economy