The Fragile US Economy

The US economy has barely managed to chug along in 2025, but lying beneath the surface is a single thread holding it all together. If that string snaps, the economy goes down with it.

The first half of 2025 saw GDP grow by 1.6%. Last year saw growth of 2.8%, and the year before that was 2.9%. This year is already a significant slowdown, but when you remove investment in data centers and information processing technology, the US economy grew just 0.1% in the first half of 2025. That is extremely low.

Let’s look at the bigger picture.

Massive investment is being made into AI as it becomes increasingly integrated into everyday life. Even as other aspects of the economy falter, those investments are driving stock markets ever higher, enriching those with sizable portfolios.

Those investments in AI are part of what is driving up costs. The new tech centers consume immense amounts of water and electricity. The average price of electricity in the US has risen 10% this year alone, compared to a 3% increase last year.

At the same time, manufacturing jobs are leaving the US —78,000 lost so far this year; farms are going bankrupt; the job market is drying up; and rising costs are making life difficult for most Americans.

This type of situation is referred to as an uneven, or K-shaped, economy. What that means is that the top 20% are doing very well because of the return on their investments, while the other 80% are seeking ways to cut costs and reduce their spending. That is not an ideal situation for a consumer-driven economy like ours, where 70% of GDP growth is typically from consumer spending.

This uneven economy has led to the top 10% of Americans accounting for half of all consumer spending. Back in the 1990s, they accounted for 1/3 of spending. Not only does this highlight the rising income inequality in the US, but it also means our economy is increasingly reliant on a small group of people to spend lavishly. That’s great for makers of high-end goods and luxury vehicles, not so great for the nation.

A growing number of experts warn that investment in AI is a bubble, much like the 90s dot-com bubble. The concern is that the price of these stocks far exceeds their value.

When the dot-com bubble burst, unemployment shot up, the NASDAQ lost almost 80% of its value, numerous companies went bankrupt, and large companies suffered significant losses, including Amazon, whose value fell by over 90% at one point.

This happened following the longest period of economic expansion in US history at the time, marked by declining unemployment and robust consumer spending. That prior economic strength was what accelerated the recovery as people continued to spend through and after the crash, allowing the economy to get back on its feet.

Our current situation is not nearly so rosy. We have rising unemployment, slowing economic growth, and spending primarily driven by the roaring stock market. When the bubble bursts, stock markets will crash, causing the top 20% to lose a meaningful portion of their wealth and, in turn, to slow or stop their spending. Companies will lay off employees during an already weak job market. And GDP growth will crater, causing a full-blown recession.

A change in leadership in the US led to a shift from investment in high-tech manufacturing, which had brought jobs back to the US, to a trade war that chilled the job market. Tariffs are at the heart of the trade war and are a regressive tax, meaning they disproportionately impact the lowest earners. Those are the same people who are suffering the most from the increase in electricity prices as the Trump administration cancels nearly completed energy projects simply because they’re renewables instead of oil or gas.

Then there is the latest hammer about to drop: skyrocketing healthcare costs. Cuts to Medicaid will lead to millions of Americans losing their coverage, while expiring ACA subsidies will cause over 20 million Americans to see their healthcare premiums more than double.

The US economy is precariously propped up on one wobbly leg that could give out at any time. It is being disguised by a modern Gilded Age veneer.

The middle and working classes, which are already strained, will be devastated. The typical response to such a crash would be major government spending to get the economy back on its feet, but the US is already at debt levels high enough to have recently led to a reduction in our credit ratings.

Taking on such a large amount of additional debt could trigger a chain reaction of further drops in US credit ratings, raising borrowing rates and increasing the already $1 trillion in yearly interest payments on US debt. All of that would cause uncertainty about the future economy, reducing investments.

That’s why it is crucial to act now. We must invest in American workers and create job opportunities so that the middle class has money to spend. We must reduce costs for essentials like food, electricity, housing, and healthcare. We need a bottom-up approach to build a robust and resilient economy. Unfortunately, the current administration is focused on further enriching the rich and bullying the world.

Another concern is that, with the Trump administration pushing back against the release of accurate economic data and the government being shut down due to a partisan impasse over healthcare, it is unclear whether the situation has worsened. We don’t have the data. We’re flying blind, so buckle up and hope for a soft landing.

https://finance.yahoo.com/news/without-data-centers-gdp-growth-171546326.html