Although the “K-shaped” macro motif’s a bit tired by now, it has a lot of utility as a framework for analyzing not just household incomes and the equity market but, increasingly, business spending too.
Let me add two disclaimers upfront. First, it’s quite difficult to nail down exactly how impactful AI spending is in terms of overall economic growth.
As Justin Fox put it three months ago while attempting to utilize the BEA’s series to quantify the big-picture impact of recent tech outlays, “After spending the better part of three days making chart after chart after chart, I now know that there are many different ways to quantify the AI capex boom that lend themselves to many different narratives.”
I didn’t spend three days with the data (I’ll be forgiven considering the Q3 numbers are less than one day old as of this writing), but I did spend roughly three hours with it and like Fox, I came away feeling less informed and more than a little frustrated.
Second, I’ll caution against the temptation to analyze the US economy by way of the old “everything’s bad if you exclude all the good stuff” fallacy, which is what it feels like some observers might be driving at when they torture the data to get capex “ex-AI.”
With those caveats, here’s a chart for your consideration:
That’s the YoY change in overall business spending with a proxy for tech outlays that includes software as well as computers and “peripheral equipment.”
The implication is that capex, like everything else, is “K-shaped” — that tech outlays are rising briskly while non-tech business spending growth is far less robust, if it’s positive at all.
In a short piece published following the release of the initial Q3 US GDP readout on Tuesday, ING’s James Knightley summed it up.
“The K-shaped economy is increasingly obvious in the corporate sector — not just in terms of the stock market’s performance but also business capex,” he wrote. “For four quarters in a row, business capex outside of tech has contracted, a recession-style performance, but investment in computing and software is up 18% YoY, which means overall business capex continues to rise.”
Maybe we just need to learn how to stop worrying and love the bomb.
I have not looked at 3Q but looked at 1H and concluded that excluding AI investment, real GDP growth was somewhere between zero and 0.6%. That remaining growth includes upper-K consumer spending which in turn is partly supported by market gains from AI investment.
That doesn’t seem like an improbable estimate. Put another way, look at the rest of the economy excluding AI investment and upper-K consumers, how much strength is there?
Unfortunately and to the economic detriment of everyone in the lower portion of the “K”, I think that the upper K group of people (individually and within corporations) will not only continue to leverage the workers from the lower portion of the K, but also will also leverage AI- all to boost their consumerism and to boost their wealth. After all, if someone is given a hammer, they’re going to use it.
For anyone who has visited other countries where wealth inequality is even more pronounced than what it is in the US- overall, It doesn’t look good – except for the very, very small group in the upper K.
In the US, we better prioritize raising, and not just maintaining, the living standards of those in the lower portion of the K, The more out of whack things get, the more barriers that get put in place around the upper portion of the K. Not a fun way to be forced to live for anyone; even for the upper K’ers.
To grow the economy, consumers need to spend more. Over time the system has been jiggered so that more and more wealth ends up in the hands of the few. If we want to keep the economic party going in the short term then the wealthy need to step up and spend, spend, spend until we can get a bigger share of the pie into the hands of the bottom majority. I haven’t seen a viable plan yet for that. My limited experience is that the more money someone has, the tighter they hold on. And how many $2.5 million homes, $100k+ cars and $1k sweaters does one need, especially given you can only use one at a time. So you billionaires get out there and buy like there’s no tomorrow. And remember if you buy a chevy you’re making us great again and if you buy a bmw you’re helping a washed up, weakling european country who deserve whatever sand Russia wants to kick in their face.