Government shutdown masked AI-driven strength in the US

Donald Trump blamed his political opponents for some disappointing economic data last week. The government shutdown disrupted the US economy to a significant degree -- masking the increasingly remarkable effects of the artificial intelligence-driven capital-spending boom.

Fourth-quarter GDP grew at a much-worse-than-expected 1.4% quarter-on-quarter pace (and 2.5% year-on-year). But as our first chart shows, calculating a "core GDP" figure that excludes the government sector shows the year-on-year growth rate picked up to 3.1%. This private-sector GDP proxy has also been on an upward trajectory for four straight quarters.

Examining the components of GDP in our second chart shows how investment and household consumption continued to be the main sources of growth in 4Q.

And our third chart breaks out that investment component, looking at the "computers and peripheral equipment" segment specifically. It's on a tear, reflecting strength in related sectors amid the artificial-intelligence boom and rush to build data centers.

The Oct. 1-Nov. 12 shutdown made it difficult for nowcasting models; the Atlanta Fed and Now‑Casting Economics overestimated US GDP in 4Q, while CEIC's nowcast undershot.

However, CEIC's current nowcast suggests that US growth is running at a blistering pace unseen since the post-pandemic snap-back: more than 7% year-on-year. (Besides the AI story, recent data also supports a positive narrative for manufacturing and spending. As we noted last month, ISM PMI surged in January on the back of new orders; consumer demand for electronics, clothing, and motor vehicles has also picked up after a lacklustre Christmas.)

The optimism was also reflected in better-than-expected non-farm payroll numbers in January, thanks in particular to education and healthcare. However -- and possibly reflecting another aspect of the AI phenomenon -- CEIC's payrolls nowcast is forecasting no pickup in employment.

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