{"id":370287,"date":"2025-12-25T05:00:24","date_gmt":"2025-12-25T05:00:24","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/370287\/"},"modified":"2025-12-25T05:00:24","modified_gmt":"2025-12-25T05:00:24","slug":"americas-increasingly-k-shaped-economy-is-difficult-to-reconcile-2","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/370287\/","title":{"rendered":"America\u2019s increasingly \u2018K-shaped\u2019 economy is difficult to reconcile"},"content":{"rendered":"

December 24, 2025 \u2014 9:12am<\/p>\n

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It\u2019s difficult to reconcile US data that showed the economy was growing at a breakneck speed in the September quarter despite a deteriorating employment market and a survey this week that showed US consumer confidence has fallen, again, for the fifth consecutive month.<\/p>\n

The 4.3 per cent increase in America\u2019s gross domestic product in the third quarter \u2013 the fastest pace since 2023 \u2013 was generated by robust consumer spending, a big rebound in exports and continued heavy spending on artificial intelligence.<\/p>\n

\"ConsumerConsumer spending helped bolster the US\u2019 GDP numbers this quarter.Bloomberg<\/p>\n

At face value, the economy is booming, which US President Donald Trump naturally attributes to his tariffs, but that sits oddly with the stalling jobs growth, an unemployment rate that has risen from 4.1 per cent at the start of the year to 4.6 per cent and \u2013 excluding AI-related spending \u2013 falling residential and business investment.<\/p>\n

It is possible, given the divergence between the state of the jobs market and the headline GDP number, that what was emerging in that quarter was the much anticipated impact of AI, which is expected to boost productivity while creating relatively few new jobs but destroying a host of them.<\/p>\n

From the anecdotal evidence from businesses, however, that process of potentially creative destruction has yet to build any meaningful momentum or visibility. It\u2019s also possible that the data overstates the growth rate.<\/p>\n

While the report covers the three months leading up to the 43-day government shutdown that started on October 1, the Bureau of Economic Analysis within the Commerce Department that compiled it noted that the shutdown had resulted in delays in many of the principal source data used to produce estimates of GDP.<\/p>\n

Trump has said he would never appoint a new Fed chair who wasn\u2019t prepared to lower interest rates. He might be disappointed.<\/p>\n

An updated GDP report will be published on January 22 and could contain some revisions to the numbers. Revisions to preliminary GDP reports are common and often quite material.<\/p>\n

The other impact of the shutdown was to delay the issuance of the third quarter\u2019s numbers, which makes them quite stale.<\/p>\n

Since the end of September, retail sales have flatlined, motor vehicle sales have fallen, consumer confidence has continued to slump, real wages growth has stalled and the household savings rate has declined.<\/p>\n

Editor’s pick\"TAE<\/a><\/p>\n

It is conceivable, therefore, that the data doesn\u2019t capture what consumers have been complaining about, which is an affordability crisis.<\/p>\n

It\u2019s also may be the case that there are two Americas.<\/p>\n

In one, with the sharemarket and property markets buoyant, the wealthy households exposed to them \u2013 particularly those with any exposure to anything AI-related \u2013 are feeling very positive and spending freely. Real personal consumer spending rose 3.5 per cent in the quarter, accelerating from the June quarter\u2019s 2.8 per cent growth rate.<\/p>\n

In the other, middle and lower-income households are under pressure, with no real wages growth to offset the higher prices being driven by Trump\u2019s tariffs. The Commerce Department\u2019s report revealed that there was zero growth in personal disposable incomes in the third quarter.<\/p>\n

The US Federal Reserve Board\u2019s preferred measure of inflation, the Personal Consumption Expenditures (PCE) index, rose 2.8 per cent in the third quarter, up from 2.1 per cent in the preceding three months. Core PCE, which excludes volatile food and energy prices, rose from 2.6 per cent to 2.9 per cent.<\/p>\n

The growing gap between the wealth and spending patterns of the wealthiest households and the less wealthy, who are struggling to absorb the price increases, has led to the US being described as a \u201cK-shaped\u201d economy: one where asset-rich high-income earners thrive while low-to-middle income households struggle with slow wage growth and inflation.<\/p>\n

An analogous picture has emerged in business investment.<\/p>\n

Small and medium-sized businesses are struggling as their input costs have been driven up, with the tariffs a significant influence, and gross private domestic investment was actually falling in the September quarter, by 0.3 per cent, despite big increases in investments in equipment and intellectual property.<\/p>\n

The AI investment boom is, it seems, holding up business investment by itself, which isn\u2019t surprising given the sheer scale of the numbers involved. There are estimates that it accounts for as much as a half the economic growth this year.<\/p>\n

Editor’s pick\"Wall<\/a><\/p>\n

The so-called \u201chyperscalers\u201d \u2013 Google, Meta, Microsoft, Amazon and Oracle \u2013 will spend about $US400 billion ($600 billion) this year and more than $US500 billion next year. By 2030, assuming the boom continues, the total might breach $US4 trillion. That will drive growth, albeit probably not many jobs.<\/p>\n

Net exports, negative in the June quarter but up 8.8 per cent in the September quarter, continued their volatile pattern this year as Trump\u2019s ever-changing tariffs caused big swings in imports, which fell really heavily (29.3 per cent) in the second quarter and were down 4.7 per cent in the third.<\/p>\n

Not too much can be definitively said about those numbers, given how erratic they have been and that it wasn\u2019t until August that the core of the tariffs were operative.<\/p>\n

That, of course, didn\u2019t stop Trump from claiming that it was his tariffs that produced the economic growth.<\/p>\n

\u201cThe TARIFFS are responsible for the GREAT USA Economic Numbers JUST ANNOUNCED,\u201d he posted on Truth Social, adding that the numbers would only get better.<\/p>\n

Separately, he once again argued for lower interest rates and said he would never appoint a new Fed chair who wasn\u2019t prepared to lower them. Trump will be able to nominate the next Fed chair when Jerome Powell\u2019s term ends next May.<\/p>\n

\"JeromeJerome Powell\u2019s tenure as chair of the Federal Reserve is set to end in May.AP<\/p>\n

He might be disappointed. The apparent strength of the economy and the continued edging up of the Fed\u2019s preferred inflation measure are more likely to encourage the Fed to watch and wait than lower rates early next year.<\/p>\n

That could make for some interesting tensions within the Fed if the majority of the voting members of the Open Market Committee that votes on US monetary policy disagree with their new chair.<\/p>\n

After the data was released, financial markets priced in a lower probability of a January rate cut as well as of the prospect of a rate cut in the first quarter.<\/p>\n

When the December quarter data is available it is likely to shed even less light on the underlying state of the US economy than the current release.<\/p>\n

Collection of the data will have been far more significantly impacted by the shutdown that ended on November 12, so we might have to wait until well into next year before a true picture emerges of the impact of Trump\u2019s tariffs, the effects AI investments are having on the structure of the jobs market and get a better sense of whether the Fed is more concerned about jobs or inflation.<\/p>\n

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning<\/a>.<\/p>\n

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\"StephenStephen Bartholomeusz<\/a> is one of Australia\u2019s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.Connect via email<\/a>.Most Viewed in BusinessFrom our partners<\/p>\n","protected":false},"excerpt":{"rendered":"December 24, 2025 \u2014 9:12am Save You have reached your maximum number of saved items. Remove items from…\n","protected":false},"author":2,"featured_media":368013,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":{"0":"post-370287","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/370287","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=370287"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/370287\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/368013"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=370287"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=370287"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=370287"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}