Recent data out of Washington shows the US economy is growing faster than expected, but let’s lift the hood on these numbers.
This growth is fragile and uneven. Industrial construction spend is declining, with much of the spend allocated towards AI and data centers. This might boost short-term growth, but it signals that a bubble is forming. We also have to account for construction costs increasing, making growth appear stronger when we’re just spending more for the same stuff. Consumer growth is steady, but only because the top 10% of earners are keeping the ship afloat. The bottom two-thirds of Americans are cutting back as everything grows more expensive.
Growth hasn’t cracked yet, but it’s going to hit harder than necessary when it eventually does.
Hey all. Peter Zeihan here. Coming to you from a Colorado that’s rapidly melting. Today we’re talking about economic growth in the United States. Specifically, in the last couple of weeks, we’ve gotten new data about how fast the U.S. economy is growing. And it’s at a surprisingly robust clip, something that the white House has taken a bit of a victory lap on.
How does this light up against all of the forecasts, including from myself, that the tariff policy and the industrial policy of the Trump administration is actually going to lead to slower growth of the long term? We’re at that moment where everyone can have their cake and eat it, too. There’s two big things going on, according to a dissection of the data.
First, industrial construction spending was still the single most important metric that I follow these days, because it shows what we’re actually building, what we put money into the ground for, as opposed to plans, continues to steadily dip down. We need that number to at least go up by 50%. If we’re ever going to build out the industrial plant that we need to prepare for the end of the Chinese system.
Instead, the tariff policies has generated so much chaos in the industrial space that that number is continuing down. But that does also generate a certain type of growth, specifically with AI and data centers. Somewhere between 30 and 40% of industrial construction spending is going into data centers right now. And that does generate some high octane growth from the jobs and the construction.
Also keep in mind that when everything that you used to build something steel, wood, copper is more expensive and were high tariffs on all of those items. Just because it costs more doesn’t mean it doesn’t count as growth. So we should be able to use those inputs to build twice as many data centers as we are.
But since you have to spend the money on that anyway, it generates the same amount of growth in terms of the consumption of those products. So it makes it look better than it really is. That’s number one. Oh. Yeah. And any time any specific subsector is that huge of a percentage of any major statistic, you know, it’s a bubble.
Number two, just as important, maybe even more so consumption, consumption has held steady despite the tariffs and the chaos of no one knowing what everything is going to cost the next day. But you have to dig down into the numbers a little bit to, get the full picture. Consumption for the bottom. Roughly two thirds of the population is actually dropping as people cut back as grocery bills and cost of electronics continue to go up.
The only segment that is increasing their consumption is the top 10% of the population in socioeconomic terms. But here’s the thing. The bottom two thirds of America’s population is only responsible for about one third of consumption, whereas the top 10% is responsible for roughly half of the total. So you can have a small sliver of the population at the top that has not adjusted their consumption, maybe is even spending more now because they don’t care about the tariff increases.
They’ve got the money to burn. But most of the population is tightening their belts, which is generating lower consumption for them. But because the top 10% consumes so much relative to everyone else, it comes across overall as a steady number. So everyone is right and everyone is wrong, myself included. Growth at this point is still holding up, but it’s becoming much more lopsided, much more dependent on some very, very specific factors that are very clearly already in bubble territory.
So it suggests that when this does crack, it’s probably going to hurt a little bit more than it needs to. When will that happen? I can’t tell you. If Donald Trump were to stop issuing new tariffs and stop changing the tariffs are in play, I might have a better forecast for you. But we’re now at something like 650 tariff policies for the year to date.
And everything is just changing too much that there is no confidence that really anyone in the industrial space has an economy right now. And that is very clearly bleeding into the consumer space as well.
