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Without AI, the U.S. economy would be dead in the water, according to Jason Furman of Harvard<\/a>, a former head of the Council of Economic Advisers under President Barack Obama. And countless analyses have described how much the stock market\u2019s advance owes to the AI-driven gains of the technology megacap names, and how much it will hurt if it comes a cropper. That includes a New York Times op-ed<\/a> from Jared Bernstein and Ryan Cummings, respectively, the head of and an economist on President Joe Biden\u2019s CEA.<\/p>\n All of which echoes former Fed Chair Alan Greenspan\u2019s famous \u201cirrational exuberance” warning voiced in 1996, more than three years before the dot-com bubble burst. What\u2019s different this time (there\u2019s that fraught phrase again) is that the economy continues to grow, not just from AI.<\/p>\n BNP Paribas economists push back at the assertion the economy is just about AI. They calculate that AI-related technology and capital spending account for about one-quarter of recent U.S. gross domestic product growth (about 0.5 percentage points), in line with historic norms. The wealth effects from the AI-inspired stock gains may have added another 0.4 percentage points to GDP growth. In the quarter just ended, the Atlanta Fed\u2019s GDPNow model<\/a> is tracking 3.9% annualized growth, after inflation.<\/p>\n The lack of official U.S. government data doesn\u2019t belie what\u2019s happening. As Bob Dylan famously observed, you don\u2019t need a weatherman to know which way the wind blows. Looking out the window also can give a lot of meteorological information. Listening to companies\u2019 assessments of their businesses similarly provides a valuable picture.<\/p>\n To get a handle on that, we turned to Peter Boockvar, chief investment officer at One Point BFG Wealth Partners. That title encompasses two functions; watching the macroeconomy as well as an array of stocks for clients\u2019 portfolios, which gives him a sharp view even while Washington\u2019s data factories are shut down.<\/p>\n Quarterly-earnings reporting season, now in full swing, provides valuable insights. The big banks, which are among the first to report, have been pretty sanguine about the economy, Boockvar says. \u201cResilience was the word they used about the consumer,” he related in an interview this past week. \u201cBut the question is whether resilience is the same as growth.”<\/p>\n The bifurcation among rich and less-well-off consumers continues to be writ large. Domino\u2019s Pizza noted weakness as the latest quarter progressed, while luxury goods purveyor LVMH Mo\u00ebt Hennessy-Louis Vuitton reported spending by upper-income consumers was on the rebound, both in the U.S. and Asia and Europe.<\/p>\n On the corporate side, lending at the biggest banks, such as JPMorgan Chase, Bank of America, and Citigroup, seemed to be fine, he added, with a few actually lowering loan-loss reserves. But JPM\u2019s Jamie Dimon once again dominated the headlines with his observation that there may be more \u201ccockroaches” among corporate borrowers after the recent blowups at First Brands and Tricolor.<\/p>\n This past Thursday also saw steep drops in the regional bank stocks led by Zions Bancorp and Western Alliance Bancorp, which sent the SPDR S&P Regional Banking exchange-traded fund tumbling 4.6%. That put the ETF down 14% from its November 2024 recent peak, in an up stock market.<\/p>\n These cracks in credit come amidst the robust overall U.S. economy. As noted here previously, spreads (the extra increment of yield over putatively risk-free government obligations) in publicly traded investment-grade and high-yield bonds remain at historic lows. But Loomis Sayles\u2019 proprietary credit gauge<\/a> finds bottom-up fundamentals to be sound and well above a \u201cworry” signal.<\/p>\n Meanwhile, the tracking of sales-tax data by The Liscio Report, or TLR, shows that the share of states (weighted by population) topping their revenue forecasts slipped in September, to 34% from 62% in August. Collections were especially weak in the Upper Midwest, reflecting a drop in crossings over the Canadian border, and were strongest in the richest states with the biggest shares of investment banking activity. TLR was started by Barron\u2019s alumnus John Liscio, who acerbically observed that economists can\u2019t forecast the future because they couldn\u2019t get the present right, so he started tracking it for them.<\/p>\n Corporate earnings calls provide a mixed picture similar to the Fed\u2019s Beige Book, the compendium of anecdotes from the 12 district banks prepared for the Oct. 28-29 Federal Open Market Committee meeting, Boockvar says. Even though that isn\u2019t enough to support another interest-rate cut at the coming policy-setting confab, it is all but certain to be coming anyway, wrote John Ryding, chief economic adviser at Brean Capital, in a research note on Friday.<\/p>\n