The AI growth engine was on full display in the first quarter, powering the U.S. economy through fresh headwinds from a war-driven surge in inflation. <\/p>\n
The conflict in the Middle East has sent oil prices soaring, disrupted global supply chains and injected uncertainty into the outlook. Even so, weary consumers \u2014 who have historically served as the primary engine of economic growth \u2014 have continued to spend. <\/p>\n
Tax refunds have helped, as have limited layoffs across the economy. But Americans are increasingly saving less to keep up with the high cost of living. With gasoline prices already at the highest since 2022, and still rising, consumers are vulnerable. <\/p>\n
The question is whether the artificial intelligence boom can continue to pick up the slack. <\/p>\n
\u201cAI can take the baton from a GDP standpoint,\u201d said Michael Skordeles, head of U.S. economics at Truist. \u201cBut the consumer is critical no matter what.\u201d<\/p>\n
U.S. gross domestic product rose an annualized 2% in the first three months of the year, accelerating from weakness in the prior period driven by the longest-ever federal government shutdown. Consumer spending growth slowed slightly, but still rose at a better-than-expected 1.6% rate.<\/p>\n
Business investment, however, showed just how much heavy lifting it can do for the economy. Business outlays on equipment and structures advanced 10.4%, the fastest pace in almost three years. Information processing equipment and software both posted outsized gains.<\/p>\n
Looking ahead, tech giants like Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Microsoft Corp. are expecting to plow hundreds of billions into AI this year. But the outlook for American households depends in large part on how the war in Iran develops.<\/p>\n
Many economists see a risk of a further cooling in consumer spending. Tax refunds have helped cushion the initial blow, but rising transportation costs may well trickle down to goods prices. And a disruption in the supply of fertilizer risks leading to higher grocery bills over time.<\/p>\n
As Americans devote more of their income to food and gasoline over the coming months, that will leave less for discretionary purchases, said Wells Fargo & Co. economist Shannon Grein.<\/p>\n
\u2018Split-Screen Economy\u2019<\/p>\n
\u201cThis is a split-screen economy,\u201d said Heather Long, chief economist at Navy Federal Credit Union. \u201cAI is doing well and the middle class is squeezed.\u201d<\/p>\n
The savings rate dipped in March to the lowest since late 2022, when the U.S. was experiencing its worst bout of inflation in decades. And a widely watched measure of consumer sentiment dropped to a record low in April.<\/p>\n
Job opportunities have dried up across much of the economy, contributing to the malaise. Thankfully, though, the unemployment rate appears to have stabilized and applications for unemployment insurance dropped last week to levels not seen since the late 1960s. <\/p>\n
Even so, high-profile corporations have announced plans to reduce their workforce in recent months \u2014 and in some cases have cited AI as part of the reasoning \u2014 leaving many households on edge. <\/p>\n
\u201cIt seems to be more of a business-driven recovery, which maybe is why the average person may not feel the economy is growing the same way as a more traditional consumer-led recovery,\u201d said Skordeles.<\/p>\n
Early company earnings reports show that in the first quarter, U.S. households were still spending but showing signs of strain. Kimberly-Clark Corp. and Procter & Gamble Co. both said that they haven\u2019t seen significant shifts in buying behavior, though executives emphasized that shoppers are already stretched after years of inflation and increasingly focused on value.<\/p>\n
The bigger impact so far is coming through higher energy costs. The Federal Reserve\u2019s preferred measure of inflation \u2014 the personal consumption expenditures price index \u2014 rose 0.7% last month, the most since 2022.<\/p>\n
Price Pressures<\/p>\n
Companies across industries said elevated oil prices tied to the war in Iran have lifted expenses, from raw materials to transportation. <\/p>\n
Airlines including JetBlue Airways Corp. and United Airlines Holdings Inc. say they\u2019ve so far been able to raise fares and recoup at least some of the higher fuel costs without significantly denting bookings, pointing to pockets of resilience. Still, United warned that the longer prices remain elevated, the more likely demand will decrease.<\/p>\n
Other companies are absorbing the costs for as long as they can to hold on to customers. <\/p>\n
Paul Altieri, chief executive officer of the watch retailer Bob\u2019s Watches, said his company already spends more than $1 million in shipping costs a year as his business heavily operates online. <\/p>\n
\u201cIf we start adding a surcharge or go up in prices to reflect increased transportation, FedEx fuel charges, we\u2019ll lose the customer,\u201d Altieri said. \u201cWe\u2019ll lose the sale.\u201d<\/p>\n
Even if American consumers grow more guarded, continued investment in AI could help provide some breathing room for the economy until geopolitical and inflation risks abate. <\/p>\n
\u201cThe issue with the AI build-out is that it\u2019s not going to last forever,\u201d said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets LLC. But \u201cit doesn\u2019t feel like we\u2019re anywhere close to the end.\u201d<\/p>\n
Saraiva, Dillard and Fanzeres write for Bloomberg.<\/p>\n","protected":false},"excerpt":{"rendered":"The AI growth engine was on full display in the first quarter, powering the U.S. economy through fresh…\n","protected":false},"author":2,"featured_media":23525,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[24,16178,25,16181,16180,16177,369,16182,1332,14505,2952,16176,16179,6140,2186,573],"class_list":{"0":"post-23524","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-ai","8":"tag-ai","9":"tag-americans","10":"tag-artificial-intelligence","11":"tag-artificial-intelligence-soar","12":"tag-high-cost","13":"tag-inflation","14":"tag-iran","15":"tag-large-part","16":"tag-month","17":"tag-oil-price","18":"tag-risk","19":"tag-split-screen-economy","20":"tag-transportation-cost","21":"tag-u-s-economy","22":"tag-war","23":"tag-year"},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/posts\/23524","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/comments?post=23524"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/posts\/23524\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/media\/23525"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/media?parent=23524"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/categories?post=23524"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/tags?post=23524"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}