AI Boom May Not Stave Off US Recession: 5 Reasons to Worry

BCA Research believes the US has a 60% chance of entering recession in the next 12 months, despite the AI boom. The firm's chief global strategist, Peter Berezin, cites five reasons why AI may not be enough to boost growth: AI spending benefits will take time to trickle down, tech job market is in decline, AI growth is concentrated in non-US manufactured goods, AI is a stock market story rather than an economic one, and the tech sector's employment is past peak growth.

Despite the ongoing AI revolution, BCA Research remains cautious about the US economy's prospects. The firm's chief global strategist, Peter Berezin, has stated that the US has a 60% chance of entering recession within the next 12 months, despite the AI boom. Berezin cites five key reasons why AI may not be sufficient to boost economic growth and prevent a downturn.

Firstly, the benefits from AI spending may take time to trickle down. Big tech firms have been investing heavily in AI, particularly in AI chips and other tech equipment. However, much of this spending is concentrated in non-US manufactured goods, and it may take some time for these benefits to be restored and felt in the US economy [1].

Secondly, the tech job market is showing signs of decline. Employment in the tech sector, including IT services and computer and electronic manufacturing, is past peak growth. For instance, employment in the IT Services sector was lower in July than at the end of 2024 [1].

Thirdly, the boom in data centers is leading to higher energy prices. The increased demand for energy to power these centers is driving up electricity prices, which could weigh on consumer spending [1].

Fourthly, productivity gains from AI have not yet materialized. Productivity growth in the "Post-ChatGPT" era has averaged around 2.1%, which is below the average during the peak of the dot-com bubble and similar to the past decade [1].

Lastly, other recession indicators are flashing warnings. The National Bureau of Economic Research's "Big Six" recession indicators suggest that the economy could be past its business cycle peak [1].

These concerns come as Palantir Technologies Inc. reported its first-ever quarter with over $1 billion in revenue, driven by AI integration. The company's AI-driven efficiency has allowed it to reduce its workforce while increasing profitability. However, Palantir's approach has sparked debate about the long-term impact on employment in AI-adopting industries [2].

Meta Platforms, the owner of Instagram and WhatsApp, is also investing heavily in AI infrastructure. The company has raised its annual capital expenditures forecast by $2 billion to $66 billion to $72 billion, reflecting the soaring cost of building and powering data centers to support generative AI [3].

In conclusion, while AI has the potential to drive growth and efficiency, the current economic indicators and trends suggest that it may not be enough to prevent a recession in the US. Investors and financial professionals should remain vigilant and monitor these developments closely.

References:
[1] https://www.businessinsider.com/us-recession-economy-job-market-ai-data-centers-boom-2025-8
[2] https://www.ainvest.com/news/palantir-posts-record-1-billion-quarter-ai-drives-48-revenue-growth-2508/
[3] https://www.businesstimes.com.sg/companies-markets/telcos-media-tech/meta-share-ai-infrastructure-costs-us2-billion-asset-sale