https://www.nytimes.com/2025/10/06/opinion/ai-growth-economy-jobs-tariffs.html
There Are Two Economies: A.I. and Everything Else
By Natasha Sarin, The New York Times, Oct. 6, 2025
…
The economy is being bolstered by a remarkable investment boom in artificial intelligence. A credible estimate suggests that A.I. capital expenditures may reach 2 percent of the gross domestic product in 2025, up from most likely less than 0.1 percent in 2022. To provide some sense of scale, that means the equivalent of about $1,800 per person in America will be invested this year on A.I.
Without these investments, economic growth this year might have clocked in at around 1 percent. Instead, it is likely to land at almost twice that. Just seven large technology companies are responsible for nearly 60 percent of the gains in the S&P 500 this year….
There are signs that the non-A.I. economy is under duress. As economists predicted, tariffs are pushing up inflation and dragging down growth. Hiring has stalled. Jobs are particularly hard to come by for young people entering the labor market; youth unemployment is at 10.5 percent, a level not seen in nearly a decade, absent the pandemic….
If there were no data centers to build, dollars would flow into other types of investment. It’s possible that other parts of the economy are being held back by A.I.’s dominance. That’s what happened in the 1990s internet boom. Smaller manufacturing companies had a hard time getting access to capital that flooded instead into every dot-com company on offer (some more successful than others)…. [end quote]
As the most established supply chain association, Institute for Supply Management® (ISM®) leads the way in research and reporting for the industry. The Services report represents about 80% of GDP. The Manufacturing report is also important.
Economic activity in the services sector was unchanged in September, say the nation’s purchasing and supply executives in the latest ISM® Services PMI® Report. The Services PMI® reading of 50 percent was at the breakeven point between expansion and contraction for the first time since January 2010. …
The Business Activity Index moved into contraction territory in September, registering 49.9 percent, 5.1 percentage points lower than the reading of 55 percent recorded in August. This is the first time the index has entered contraction territory since May 2020. The New Orders Index remained in expansion in September, with a reading of 50.4 percent, down 5.6 percent from August’s figure of 56 percent. The Employment Index remained in contraction territory for the fourth month in a row and the fifth time in the last six month…
https://www.ismworld.org/supply-management-news-and-reports/reports/ism-pmi-reports/pmi/september/
Economic activity in the manufacturing sector contracted in September for the seventh consecutive month, following a two-month expansion preceded by 26 straight months of contraction, say the nation’s supply executives in the latest ISM® Manufacturing PMI® Report…. [end quote]
There are are many details embedded in these reports. The section “WHAT RESPONDENTS ARE SAYING” in the Manufacturing report is a must-read.
Real GDP grew 3.8% in 2Q2025. Personal Consumption Expenditures (PCE) Growth was 2.5% and Real Final Sales to Private Domestic Purchasers was 2.9%. This is very solid growth. The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2025 was 3.8 percent on October 1.
The Trump tariff and immigration policies are taking time to gradually impact the economy. The current growth rate is very solid but there are signs of slowing.
There are really not two economies – AI and everything else – because the real economy is $30 Trillion while AI is not generating significant profits. Nvidia is making profits from selling its chips but the actual profits generated by AI end-users are much smaller and even losses.
According to Google Gemini: It is generally recognized that at this time (late 2025), the global AI industry as a whole is likely operating at a negative net profit or a net loss, if one were to combine the massive profits from chipmakers like Nvidia and the profitable cloud segments of Big Tech with the enormous, multi-billion-dollar investments and losses from AI model developers and start-ups. [end quote]
The real economy exists in goods and services. The AI economy doesn’t exist yet – but the stock market is hugely invested in it. All the eggs are in one basket – a basket which may not pay off for years, if ever. (As the Chinese are developing low-cost alternatives to expensive chips.)
I am old enough to remember how tech advances have caused once-leading companies, like Wang Computers, to vanish.
An economy is not the same as a stock market. The Trump administration is actively undermining the real economy but it’s still strong. The stock market is in a bubble that could burst at any time.
Wendy