Jobless claims continue near historic lows, forecast sub-4.0% unemployment rate

 

 - by New Deal democrat

Let’s take our regular weekly look at jobless claims. As a brief reminder, I always look at this because, especially in conjunction with stock market performance, it is an excellent short leading indicator, and also leads the monthly unemployment rate. 

And the news continues to be very good especially on a historical basis. Initial claims declined -6,000 to 194,000, one of the lowest numbers in 50+ years. The four week moving average declined -1,000 to 197,750, also one of the lowest numbers in 50+ years. With the typical one week delay, continuing claims rose 25,000 to 1.728 million, which remains also well behaved:

On the YoY% basis more important for forecasting purposes, initial claims were down -16.0%, the four week average down -13.2%, and continuing claims down -11.2%:

Note that these comparisons have been getting *even more* positive in the past several months, indicating a strengthening jobs market.

Finally, we’re far enough along in the months to update what this likely portends for the unemployment rate (orange, thin line) for the next few months. Since the unemployment rate is a rounding of the actual ratio of unemployed to the labor force, I’ve also included that (dark red):

We’ve had a slight contratrend move in the last several months in the unemployment rate, likely reflecting the upward tick in new jobless claims earlier in summer. But it is almost certain that the downward trend in the unemployment rate will continue, likely under 4.0% in the next few months.

In short, despite the continued chaotic economic lunacy coming out of Washington, it is extremely hard to derail the US economy. The bigger danger over the next months is that AI will prove to be a bubble after all, the popping of which would drag both consumer spending and also job growth down with it.

The inflationary expansion is still expanding, and is likely even more inflationary

 

 - by New Deal democrat

There were a couple of reports last week about the manufacturing sector that I didn’t cover then. Let’s take a look at them now. What I am interested in is whether the rebound in manufacturing is continuing, is it more or less inflationary, and is it supported by sales?

First up, both the NY and Philadelphia Fed manufacturing indexes were reported. The below several graphs average the two to minimize noise. Ideally I would like to show the three month average, but unfortunately it is one of the few things that FRED does not indulge.

The headline index average (blue in the graph below) shows that the rebound is very much in place, and if anything has accelerated in the past few months. The more forward looking new orders (red) suggests that the rebound, if not ebbing, might be a little past its peak:

In other words, still strongly positive, and set to continue for a few more months, all else being equal.

The prices paid (blue) and prices received (red) index averages tell a less positive story:

Not only are inflationary pressures still very widespread (in the prices paid subindex), but the indication is that they are increasingly being passed on to customers (in the prices received subindex).

So if there is an industrial expansion, it very much remains an inflationary one - and the inflationary aspect may be accelerating even more.

Now let’s look at the second report from last week: business sales and inventories.

The first thing for me to repeat is that sales lead inventories by several months at least, as shown in the below graph of the absolute levels of sales and inventories (/1.5 for scale) in log scale (note these are both nominal, but since we are interested in the trend, we don’t need to worry about the proper deflator):

Sales always turn up and turn down first. Once business see that their sales have turned, they either increase or decrease inventories in reaction.

But an even better way to show this same data is YoY, as below:

This makes it easy to see that inventories change, up or down, after sales do.

Now here is a close-up of the last few years in absolute terms:

Note that sales have stalled since May, declining slightly and then, as of August, the last month reported, only 0.5% higher. While this isn’t a downturn, and there have been a number of similar sideways moves before, if this were to continue several more months I would expect inventories to react as well - which would mean a cutback in production and, if pronounced and long enough, in employment.

Which brings me to my final graph, which is the average of the employment subindex in the two regional Fed reports:

Manufacturing employment has continued to grow at the best pace since the immediate post-pandemic Boom, if at a slower pace than at its June peak. The three month average is slightly down from there, but still quite positive.

In summary, the business sales and inventory report, and the NY and Philadelphia Fed manufacturing reports, show that the inflationary expansion is still both an expansion and inflationary, with employment growth as well. But new orders suggest that in a few months it might begin to decelerate somewhat, exacerbated by customers reacting to increased costs; and if that shows up further in sales, then production and employment might then begin to flag as well.

September new housing construction: saying farewell to the late incipient housing recovery

 - by New Deal democrat

Last month I started my report on housing construction by writing that “This morning’s report on housing construction may be the last decent one for quite awhile.” And it was. 

Up until last month I had been writing that housing construction was most consistent with an economy coming out of a recession than going in to one. Needless to say, with the spike in mortgage rates, that is no longer the case. In September housing starts (blue) declined -5.2% to 1.221 annualized, while the less volatile and slightly more leading permits (gold) declined -0.2% to 1.400 million. The least volatile metric of all, single family permits (red, right scale) declined -4.0% to 845,000:

All three of these metrics had been trending essentially sideways since the summer of last year. As of this month, the YoY comparisons are now near the bottom of that range, with starts down -7.4%, permits by -3.0%, and single family permits by -4.8%:

This doesn’t mean housing is forecasting a recession yet. While I won’t bother with the graph this month, in the past these three metrics have generally been down -10% or more YoY to be consistent with the onset of a recession.

Now let’s update the “last shoe to drop” in this series, housing units under construction. This was unchanged on an annualized basis at 1.280 million units:

This series has been essentially flat - even rising slightly - as well since the beginning of this year, which is typical of an economic recovery that is beginning or has already begun:

Which, if it weren’t for rising mortgage interest rates would be good news.

So let’s close out with graph of mortgage rates (blue, inverted) on a monthly basis, showing that they rose to an average of 6.86% in September and 7.38% so far in October:

As the above graph shows, a similar increase in mortgage rates in late 2023 (noisily) led to roughly a -10% decline in permits issued (gold, right scale) over the next few months. With the further increase in mortgage rates this month, I expect further deterioration in new housing construction over the next several months as well.

One final note:  from a forecasting perspective, the housing market, along with corporate profits and real retail sales per capita, is one of the three nonfinancial, or “real world” long leading indicators that is of added importance for whether the US economy continues in expansion or falls into recession. Despite the renewed downturn in housing, as of now, both of the other two are still very positive. So - barring particularly strong new lunacy from Washington - the inflationary expansion appears likely to continue over the near term.

Consumer spending, income and wealth

 

 - by New Deal democrat

For awhile now I have been writing about how the wealth effect has been powering sales among upper income households. Earlier this year the Minneapolis Fed took a look at the phenomenon, comparing data from several different sources, including Moody’s:

The New York Fed:

And Bank of America:

They noted that “While Moody’s pegs a sharp break after 2020, Bank of America did not observe a widening gap in their data until mid-2025, when a large separation in spending growth opened between lower-, middle-, and upper-income customers—arguably more ‘E’ than ‘K’”

Interestingly, while they don’t supply any explanatory data, in their conclusion they note:

For each measure above, households are stratified by income. This is a natural consequence of the available data; from credit card issuers to market research firms to U.S. government surveys, income is the common denominator.

“However, wealth—rather than income—increasingly distinguishes the most well-to-do U.S. households. According to the Federal Reserve Board, household wealth has become increasingly concentrated among the top 0.1 percent. And there is ample evidence that wealth (independent of income) empowers spending, with asset-rich individuals able to borrow against their holdings and fund very high levels of spending.

This is particularly noteworthy because in the past four years there has been a huge divergeance between income and wealth, at least as measured by stock market gains. As shown in the graph below, total personal income has risen 23% since September 2022, while the stock market has doubled - it’s up 100%!

All of this adds to the evidence that at the moment the US economy *is* the stock market. Which also means that, if all else stays the same (or reasonably close thereto), a sharp selloff in the stock market is likely to prompt a sharp decline in consumer spending - which can easily become a vicious cycle, which would be broken only when sales come more in line with income growth (or, heaven forbid, decline).

Weekly Indicators for October 12 - 16 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

The tug of war between the AI-powered inflationary expansion, and the Big Bad Billionaire Bust-out Bill and Iran war-related increase in interest rates and gas prices continues. In the present, so far AI is winning. But out on the horizon, enough damage has accrued that (for this week at least) the long leading indicators have turned from positive to neutral.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with a penny of two in lunch money for my efforts collecting and organizing it all for you.

Insutrial production, primarily powered by AI-related utilities, continued its rebound in September

 

 - by New Deal democrat

One of the biggest, if not the biggest, trend I have been writing about is the rebound in manufacturing that has been driven by AI data center construction. In that regard, industrial production, one of the four important monthly series that the NBER looks at in determining whether the economy is expanding or contraction, has been an important indicator of that upward trend, and that continued in September.

Headline production (blue) rose a sharp 0.7% to another post-pandemic high, and manufacturing production (red) rose 0.3%. And electric and gas utility production (gold, right scale), which is most closely aligned with AI data center construction, increased sharply against, by 3.5%. The below shows all three normed to 100 as of just before the pandemic:

Utility construction has outpaced the manufacturing sector as well as the headline number in the past few years, and continued to do so in September. On a YoY basis, while headline production was up 2.2% and manufacturing production up 1.1%, utility production continued to be up sharply, by 8.7%:

So the big news from industrial production is that AI data center construction continues to be the centerpiece of the manufacturing rebound since last year.

Retail sales continue this year’s positive trend, suggest jobs market likely to improve as well

 

 - by New Deal democrat

As per usual, real retail sales is one of my favorite economic indicators, because it says so much about the health of the US consumer, and since consumption leads employment (noisily), also forecasts the trend in job creation.

Normally I don’t spend a lot of time on nominal retail sales, but this year that is more useful. That’s because the weekly Redbook index, which tracks nominal retail spending YoY, has been accelerating, up as much as 11% YoY (in fact this week it was 10.5% higher YoY). Here’s what the past five years of that index look like:

It was white hot in 2022, cratered in 2023, and has been accelerating back higher ever since, including this year.

But was it telling an accurate story? 

That’s where nominal retail sales come in. These were up 0.8% in September, and higher by 6.3% YoY. Here is what the YoY% changes in that metric look like over the past five years:

This is the exact same pattern as in the Redbook graph above. In other words, Redbook’s weekly updates have been telling us a true story (which is one reason why I track them every week as part of my Seeking Alpha weekly roundup of data).

But as useful as nominal information can be, the inflation adjusted data is more important. And since consumer inflation was higher by over 0.6% in September, real retail sales rounded to only a 0.1% gain. Still, note that there has been a sharp increase in real retail sales this year, although they remain lower than during the immediate post-pandemic Boom:

Note that this is telling a similar story to that of jobless claims that I just updated again this morning.

Although I won’t show the historical graph in this post, for about 70 years prior to the pandemic a decline in real retail sales YoY generally meant that a recession was close at hand. As you can see from the below graph, that wasn’t true for 2023-24. But YoY real retail sales have been positive, and improving, this year:

Further, real retail sales lead nonfarm payrolls (red in the above graph), albeit noisily. Sudden changes, such as caused by YoY comparisons with stimulus spending, take a longer time to get “digested” by the jobs market (a decent proxy is the 12 month average of the YoY% change in sales), but typically the lead/lag time is on the order of about 6 months. In that regard, here is the close-up of the last two years in the above YoY graph:

With the improvement in real retail sales this year, I expect the next few jobs reports to be positive, and perhaps more positive than we saw earlier this year.

So, to reiterate: like jobless claims, this is another positive for the economy.

Jobless claims continue near historic lows (yet again)

 

 - by New Deal democrat

Let’s take our regular weekly look at jobless claims. As per my periodic reminder, these are an excellent short leading indicator for the economy, particularly in conjunction with the other half of my “quick and dirty” forecast method, the YoY% change in stock prices.

These have been near historic lows much of this year, and continued in that vein this week. Initial claims rose 1,000 to 199,000, and the four week moving average rose 250 to 198,500. With the typical one week delay, continuing claims declined -4,000 to 1.710 million:

On the YoY% basis more important for forecasting purposes, initial claims were down -10.4%, the four week average down -11.7%, and continuing claims down -11.3%:

This metric continues to be very positive.

Since we’re still early in the month, I’ll dispense with what this means for the unemployment rate (but it certainly means I don’t expect the unemployment rate to increase). So here is the update on the “quick and dirty” forecast mentioned above. Note that since the metric for jobless claims is that they not be higher by more than +10% YoY, that line is inverted, and 10% added:

In contrast to the deteriorating real aggregate payrolls I discussed yesterday, this - like most current leading indicators - remains quite positive. To reiterate: when it comes to gauging the economy, leave your ideological predisposition at the door. In essence, the AI Boom (or bubble) is outweighing all the other economic determinants at the moment.

September CPI shows widespread movement *away* from Fed target, post-pandemic low in real nonsupervisory payroll growth

 

 - by New Deal democrat

After two benign months due to a temporary decline in energy prices this summer, the higher trend in inflation returned. And that continued in September, as prices (blue) rose 0.6%, and on a YoY% basis accelerated 0.3% to 3.7%. Core CPI excluding food and energy (red) also rose 0.3% for the second month in a row, rising from its post-pandemic YoY% low of 2.4% to 2.6%. Excluding shelter (gold), CPI rose 0.5%, but also increased 3.5% YoY:

Needless to say, the big culprit was energy prices, which rose 5.2% in September alone, and were up 20.4% YoY:

And the bad news extended to shelter, which is 1/3rd of the entire index. It reversed its recent deceleration, rising 0.4% for the month, and 3.2% YoY (blue).  Of it’s two components, Owner’s equivalent rent rose 0.3% monthly and increased to 3.3% YoY, while actual rent of primary residence also rose 0.2% and was up 2.8% YoY:

There was other bad news as well. Electricity prices rose another 0.2%, and are higher by 20.4% YoY. Utility services did decline -0.3% for the month, but remained higher by 5.0% YoY. And computer hardware prices rose 1.4% for the month, and were higher by 9.7% YoY:

Motor vehicle maintenance and repair also continued to be a problem child, up 0.7% for the month and 5.8% YoY:

If there was a silver lining, it was that motor vehicle prices continued to be somnolent. New vehicle prices (red) rose 0.2% for the month, and were only higher 0.6% YoY, and while used vehicle prices (gold) rose 0.7% for the month, they remained lower YoY by -1.5%. The average for all motor vehicles (blue) was higher 0.5% monthly, but was unchanged YoY:

Finally, let’s update real nonsupervisory hourly wages (orange), which declined and real aggregate nonsupervisory payrolls (red), both of which declined -0.4% for the month. Both remain about -0.9% and -0.5% below their February and January peaks respectively:

Real wages are also down -0.4% YoY, but payrolls remain positive, up 0.5% YoY:

Recall that real aggregate nonsupervisory wages are an excellent short leading indicators for recession. Further, when they turn negative YoY, they have been a good coincident marker for a recession. The current situation remains almost sui generis. It is very rare for this metric to stay below peak for more than half a year without a recession occurring shortly thereafter. In fact, only three times in the past 60 years, for *1* month apiece in 1968, 1996, and 2011, have decelerating real aggregate nonsupervisory payrolls been higher this little YoY without a recession ensuing shortly thereafter:

In conclusion, this was a poor report for obvious reasons. Not only are oil and gas prices driving up the headline number, but the recent quietude in shelter prices appeared to reverse a little higher, and the AI-data center driven increases in electricity, water, and computers are still firmly in place. While my forte is forecasting rather than Fed-watching, it is difficult to see the Fed being comfortable with this widespread boomerang away from its 2% target.

The subpar equilibrium in existing home sales continues - for now

 

 - by New Deal democrat

To repeat my housing sector mantra for the umpteenth time, mortgage rates lead sales, which in turn lead prices, which finally lead inventory. 

And for the last three years, the market for existing homes has been rangebound, first in sales, then in prices, and finally this year in inventory as well, in what I have described several times as a “suboptimal equilibrium,” because the housing market as a whole continues to be unaffordable compared with any time outside of the housing bubble before the pandemic.

That continued in September, in which existing home sales rose a seasonally adjusted +1.5% monthly to 3.99 million annualized from a slightly downwardly revised August. Which continues to be well within its range of between 3.85 - 4.30 annualized for the past three+ years:

With rangebound sales, prices on a YoY basis have been relatively calm as well. These are not seasonally adjusted, so we look at them YoY. On that basis, since February of 2025 there has been no YoY comparison higher than 3.0%. in September the YoY comparison was +1.3%, as the median price of an existing home was $417,500, vs. $412,300 one year ago. Prices did  decline -10,200 vs. August on a non-seasonally adjusted basis, as they typically do after midyear:

As noted above, this year the most lagging metric, inventory, has also fallen in line - at least until this month, as the YoY% change in existing home inventories increased to 4.6%, the highest comparison since March. By contrast, last month it was down less than 1%. For context, as recently as last December it was up 7.9% YoY:

Unfortunately the above graph does not show the metric very well, but for the last year on a YoY basis inventory has consistently been about -500,000 less than it was a decade ago. Until this inventory shortage is taken care of, the housing market will continue to be tight, and largely unaffordable for new buyers.

To bring this discussion full circle, here is what mortgage rates (gray, right scale) look like in comparison with sales (blue, left scale):

As I wrote at the outset, mortgage rates lead sales, and with the recent increase in mortgage rates to the 7.50%-7.60% range, I fully expect both existing and new home sales, as well as housing permits and starts, to react to the downside over the next several months. So this recent subpar equilibrium may shortly be broken - unfortunately, to the downside.

 

A proposal for Project 2029: Medicare Advantage for All

 

 - by New Deal democrat

On this Indigenous Peoples/Columbus Day holiday, there is no new economic news, so let me roll out something I have been thinking about for quite a while; namely, how to migrate from out current patchwork health care insurance system to a better, universal system.

Such a migration is very popular. Just last week, the Kaiser Family Foundation reported that 66% of all Americans, including 72% of all self-identified Independents, favor some sort of national health care plan:

 

The question has always been, how to get there from here, given the many stakeholders with strong financial incentives under the current hodgepodge.

While many observers have issues with Medicare Advantage plans, they are very - and increasingly - popular among Medicare recipients. But they do have several advantages, including that a person enrolled knows up front how much is being paid for by the plan (rather than the uncertain “80%” coverage of regular Medicare). And over the long run, both types of plans seem to cost a similar amount, with the difference being that Medicare Advantage plans are better for relatively younger, healthier seniors, and regular Medicare better for seniors who have costly medical conditions.

(ADDENDUM: I also wanted to mention that other countries with very efficient and successful universal public health insurance programs, like France and Germany, rely upon private insurers to provide coverage).

Another advantage that “Medicare Advantage for All” would have over “Medicare for All” is that the potent medical insurance lobby would very much be in favor of its passage, removing one very big roadblock to it. And it could easily be employed promptly, since medical insurers already have plenty of experience handling and paying medical claims.

But one big question is, how would it be paid for? Especially if some sort of taxpayers’ revolt from an increased tax burden might be feared.

First of all, there should be no further concern about deficit spending for such a plan. If the GOP can blow a huge hole in the budget and run up $Trillions of debt for a tax giveaway to Billionaires, there is no point in arguing for fiscal prudence on the other side. On top of which, as I’ll lay out below “Medicare Advantage for All” ought to be able to pay for itself.

Here’s how my proposal would work.

1. Everybody not covered by existing Medicare, CHIPs benefits, or Veterans’ benefits, would qualify.

2. The plan would be funded by a FICA withholding tax. Similarly to income tax withholding, at the beginning of each year, every person employed would fill out a form listing the number of persons in their household. Full exemptions would be granted for every household member covered by any other type of medical insurance (including employer-sponsored medical coverage at least equivalent to either an Obamacare silver plan or a Medicare Advantage plan. FICA taxes for the program would be withheld from the person filing the form, as well as any dependent not so covered. In this way, most importantly anyone already covered by an employer’s plan would face no new taxes.

3. Employers with more than 50 employees and $5 million in gross sales would be required to pay their 50% share of the FICA withholding tax starting with the next fiscal quarter more than 60 days after the passage of the act.

4. Employees and smaller employers would not be required to pay their share of the FICA withholding tax until the first fiscal quarter more than one year after the passage of the act.

5. Which means, as per my opening comment, most of the initial year’s outlays for the program would be put right on the general national debt. After that, the FICA taxes would be designed to fund the annual costs of the program, just as FICA taxes have done for, e.g., Social Security and Medicare in the past.

6. Benefits under the act would begin to be paid the first fiscal quarter more than one year after passage of the act as well.

7. The year’s delay in employees’ having to pay the tax would give them a chance to bargain with their employer, formally or informally, about their pay; and if their employer refused to raise their pay to cover their share of the FICA withholding tax, it would give them a chance to find employment elsewhere at a higher rate of pay.

8. Any employer with over 100 employees or over $10 million in gross sales refusing to increase employee wages or salaries to cover their share new FICA taxes would be hit with an income tax surcharge of an equal amount.

9. Just like Medicare Advantage plans, people newly enrolled in the plan would have to compare various plans on offer. If they failed to choose one during the coverage window (the same window of time as with existing Medicare), they would be enrolled in a randomly chosen plan available in their area. Over several years, even lazy consumers who wound up with poorer plans would likely migrate to better plans recommended by relatives and/or friends.

10. The year’s delay in the beginning of payments of benefits would also allow insurers to develop their Medicare Advantage plans for the new influx of younger people (who on average would be in much better health than current Medicare enrollees).

11. Since the program would be funded just like Social Security and existing Medicare, it should withstand any creative Court challenges (with the big caveat that nothing is beyond the majority of the current SCOTUS, but SCOTUS expansion should happen first before anything else anyway).

12. Over time, it’s likely that employers would find it easier and less expensive just to pay their employees’ FICA taxes to join the new Medicare Advantage plans rather than continue with the burdensome paperwork of their own private plans.

13. In addition to being funded by new FICA withholding taxes, the one year hole in the budget would be covered by rescinding the last 3 GOP tax giveaways to the wealthy in 3 stages. For individual taxpayers who earned over $500,000 and corporate taxpayers with gross sales or earnings over $10 million, the 2025 Big Bad Bust-out Bill’s tax cuts would be rescinded immediately. The similar but relatively smaller 2018 tax cuts would be rescinded in two years. And the 2012 extension of the 2002 Bush tax cuts would be rescinded in four years. Further, the rescission would be made retroactive for four years based on income declared then (note there is no “ex post facto” issue as to taxes, which can be made retroactive); and the taxpayers would be given years from the inception of each rescission to pay back the relevant taxes.

The end result would be that every American would be covered by medical insurance at least equal to either Medicare or an Obamacare silver program. Insurers, who suddenly would have a substantially larger pool of relatively healthy new customers, would also be happy. And to the extent necessary (which I doubt it would be), “Medicare Advantage for All” could be a stepping stone, via a subsequent public option if so passed, to “Medicare for All.”

Weekly Indicators for October 5 - 9 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

The paradigm that has been supreme for the last few months continues. On the one hand, there are soaring AI related stock prices fueling consumer spending. On the other hand, there are also sharply higher interest rates and gas prices. So far, AI has been ‘winning.’

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me a little bit for obtaining and organizing it all for you.

The US economy right now: AI vs. everything else

 

 - by New Deal democrat

Let’s wrap up this week of limited economic data by looking at perhaps the most prevalent theme about the state of the US economy right now: that it consists of basically 2 components, (1) AI and (2) everything else. This is a round up of a bunch of graphs I have seen in the past few weeks that have all circulated around this same point.

First of all, construction spending. While unfortunately FRED doesn’t separate out data center spending, some other writers have. Here’s a good graph from Steve Rattner showing how, when we take out AI data center construction spending, the entire remainder of construction spending has been declining since the middle of 2024:

Here’s a fuller breakdown from Prof. Jason Furman:

And Prof. Furman also points out that total CapEx investment is more concentrated now than at any point in the last 50 years:

This is showing up in stock market valuations:

The valuations of AI related companies are Booming. Everything else is moribund.

This is apparent in the advance-decline line. If share prices in more companies in, e.g., the S&P 500, increase on any given day vs. decline, the A-D line is positive. If the declining number of stocks outnumber advancing ones, the A-D line is negative:

Here is a longer term historical view of a similar, basically self-explanatory, metric:

The last time the number of outperforming stocks was this narrow was during the dotcom bubble at the end of the 1990’s.

Meanwhile borrowing costs are rising for lower rated corporate debt:

Here is a similar FRED graph that, in addition to Treasurys (purple), includes high rated AAA corporate debt (blue), lower rated but still investment grade BBB corporate debt (orange), vs. risky high yield CCC or lower corporate debt (red), all normed to “0” as of the lows in the bond market last October:

In general, the lower rated the debt, the more it blows out to the upside in the yield investors demand to buy that debt. This includes before and during recessions, but also during and after other scares, such as the Silicon Valley Bank collapse in March 2023.

Basically the US economy has put all its eggs in one basket, called AI. Earlier this week Paul Krugman wrote on his substack that "Massive spending on data centers is crowding out investment in everything else in the economy,” adding that "this isn't a hypothetical risk." And as I have written in the past several months, while the *software* aspect of AI may not be a bubble, i.e., the end result of AI may be a boon to human productivity, the *hardware* aspect, i.e., 10 or 20 different companies all making massive construction investments in plant and equipment, where only 1 or 2 companies are likely to survive as winners (much as in the 1990s all of the internet search companies withered except for the big winner, Google), almost certainly *is* a bubble.