🥛 Why AI is key for the US economy 🤖

GM. This is Milk Road Macro, the newsletter that sees the economic plot twists before they hit the front page.

Here’s what we got for you today:

✍️ How AI is reshaping the US economy
🎙️ The Milk Road Macro Show: The AI x Crypto Collision Course: How This Market Intersection is About To Explode w/ Kyle Reidhead
🍪 US new home sales surged last month

Prices as of 7:00 AM ET.

HOW AI IS RESHAPING THE U.S. ECONOMY

AI is the US economy.

And the US economy is AI.

I see a lot of analysts and commentators worried about the increasingly lackluster labor market and employment statistics in America.

They see a major growth slowdown or recession type environment, based on looking at historical data as a benchmark - and they see a big market crash ahead.

But one thing these people generally have in common is that they don’t mention AI.

It’s not even part of their thought process.

And it should be.

So I wanted to run through some charts to show how AI is massively impacting the US economy and how we should think about it.

Let’s take a look…

GDP growth is resilient while labor market weakens

Recent benchmark revisions erased nearly one million jobs from the US economy, cutting net payroll gains to just 847,000 between March 2024 and March 2025, much less than previously thought.

And the unemployment rate has also drifted from 3.4% to 4.3% in recent years.

And yet, during the same period, Real Output Growth grew steadily by 2 to 3 percent.

A big reason for this is a pick-up in productivity fueled in large part by AI, according to analysts at Market Radar:

“The economy kept expanding even as hiring slowed, a clear signal that labor alone is no longer powering the recovery.”
“The gap is being filled by productivity… similar to 1995–1998, when the economy grew despite weaker payroll numbers.”
“Since the 2000s, growth has been highly dependent on payroll growth to boost GDP - this may be the first time since the 1990s that we see a majority of growth produced by productivity increase rather than labor force increase.”
“Stocks care about earnings and output, not headcount.”

Source: Market Radar

Also, job growth within the tech sector specifically has been declining.

But the amount of overall growth occurring within the sector continues to expand rapidly.

The chart below, from Prometheus Macro, focuses on the “Information and IP” (tech) segment of the economy.

This chart shows that the payrolls contribution to GDP has been flat and falling recently (fewer jobs/slower hiring) but the output contribution to GDP is skyrocketing (indicating that the sector is still strongly powering overall US growth).

Source: Prometheus Macro

An August 2025 study published by Stanford states that:

“AI-exposed occupations have experienced a 13 percent relative decline in employment even after controlling for firm-level shocks.”
“In contrast, employment for workers in less exposed fields and more experienced workers in the same occupations has remained stable or continued to grow.”

AI ‘a very powerful tailwind’ for US economy

Bloomberg Chief Economist Anna Wong believes that, looking ahead, capital expenditure and business investment is going to drive the economic cycle more than a strong labor market and consumer spending.

On a recent Monetary Matters podcast, she said:

“I think there is a backlog of investment because of AI, which is why I am more hopeful.”
“The second phase of AI, which is the adoption part, still requires a lot of data centers, a lot of power, and a lot of semi-conductor chips, all of which are in shortage right now.”
“And on top of that, if the Fed is cutting rates, it will move this forward and serve as a tailwind to the economy.”
“AI-related capex is massive in relation to the overall economy.”
“We calculated that in the first half of this year, AI-related contributions added 1 percentage point to overall GDP growth.”
“GDP growth was tepid in the first half of this year, so without AI, it would have been negative.”
“AI was able to drive the economy forward, despite all these trade shocks and everything else, it’s a very powerful tailwind.”

Here’s the chart that Wong was referring to.

Tech is currently contributing more to overall GDP than at any time during the dot-com boom in the 1990s.

Source: Bloomberg

Big tech capex spending among just seven firms is expected to top $400bn this year and then exceed $500bn in 2026.

Just absolutely wild levels of spending.

And the numbers in the graph below could actually be underestimating the scale of spending.

Source: Bloomberg

The question of whether this spending will turn out to be an efficient use of capital, and whether AI will live up to the hype and generate the required revenue, is a question for another day.

But for now, the AI boom is literally powering the US economy.

Capex spending among the top hyperscale tech firms, as a percentage of cash flow, has increased from 35% in 2023 to 72% in 2025.

Despite this massive spending, tech sector credit spreads are incredibly low (indicating a strong confidence in the sector’s creditworthiness).

This indicates that credit investors (the smartest investors in the room?) are not yet worried that the huge levels of spending could spell danger down the road.

Source: Bank of America

Let’s talk about Oracle

I also want to highlight Oracle as a specific case study.

Oracle is already a relatively large company, but its stock surged 43% in just one day earlier this month after it reported knock-out earnings.

The numbers that Oracle is pulling are ridiculous - and signal the huge scale of the AI boom.

Safra Catz, CEO of Oracle, said:

“We’ve signed significant cloud contracts with the who’s who of AI, including OpenAI, Nvidia, AMD and many others.”
“Our cloud orders grew by nearly 500%, on top of 83% growth last year.”
“I expect we will sign additional multi-billion dollar customers and that orders will grow to exceed half a trillion dollars.”

Larry Ellison, co-founder of Oracle, said:

“A lot of people are looking for inference capacity. I mean, people are running out of inference capacity.”
“Someone called us, and said we’ll take all the capacity you have that’s not currently being used anywhere in the world - we don’t care.”
“I’ve never gotten a call like that.”
“Now we deal with heads of government and heads of state.”
“Everyone wants it - I think demand is going to be insatiable.”

Oracle saw a $317bn increase in orders between Q4 2024 and Q1 2025 - this represents approximately 81% of the entire US economy’s quarterly nominal GDP growth during that same period.

Also, Oracle’s future power demand equates to more than 150% of Germany’s entire electricity system.

Wrapping up

There is no backtest for this.

There was no AI impact on GDP and the labor market 20, 40 or 60 years ago.

So, anybody referencing old data as a benchmark for the current situation is simply not taking into account the full situation.

Is this a bubble?

Maybe it is, maybe it isn’t.

But the point I’m trying to make here is that, for better or for worse, the AI economy is basically the US economy at this point.

So it needs to be taken seriously when attempting to gauge the overall strength of the US economy.

That’s it for this edition - catch you in the next one.

AI MEETS CRYPTO. IS THIS THE NEXT BOOM? 💥

In today’s episode, we sat down with Kyle Reidhead to talk about the collision of AI and crypto, and why this market intersection is heating up fast.

Here’s what you’ll hear:

Why the Fed’s rate cut signals a green light for risk assets like crypto
The real reason Bitcoin might be entering a brand-new multi-year cycle
How AI capex is reshaping the business cycle (and what that means for investors)
Why crypto infrastructure, not AI tokens, is the key to unlocking AI’s next phase

Don’t sleep on this one 👇

YouTube | Spotify | Apple Podcasts

BITE-SIZED COOKIES FOR THE ROAD 🍪

An investor rush out of US assets and into Europe and Asia has reversed course as big money managers ride a wave of AI and interest rate euphoria, ditching the “rest-of-the-world” trade. Figures show investors resumed buying US stocks in August after pulling cash from the asset class in the three months prior.

Sales of new homes in the US surged by more than expected last month. New single family home sales rose 20.5% in August to an annualised rate of 800,000 units - the fastest pace since early 2022 and well above economists' forecasts.

President Trump may be looking to expand his tariff regime as investigations are launched into imports of robotics, industrial machinery and medical devices. The newly announced probes expand the potential sectors that could be exposed to tariffs, as Trump looks to encourage domestic manufacturing in key industries by hiking the cost of imports.