OPINION:
The U.S. economy is outperforming the expectations of both the experts (macroeconomists who study what drives employment, productivity and growth) and skeptics (in this case, the Democrats and their supporting media outlets).
During the first Trump and Biden administrations, the economy grew at an annual rate of 2.5% and added 141,000 jobs monthly. That’s a lot better than the 2% experts think is possible.
In 2025, the economy overcame the disruptions imposed by President Trump’s reckless tariffs and crackdown on legal and illegal immigration, and continued to grow at a 2.5% pace, adding only 49,000 jobs a month.
How? Artificial intelligence is ripping through workplaces and rapidly elevating labor productivity.
Last year, J.P. Morgan and Goldman Sachs predicted an annual boost to growth of 0.8% to 1.5% that could persist for several years.
Rapidly advancing labor productivity should herald rising real wages and moderate inflation. However, those face headwinds from a mismatch between the skills of the unemployed and the abruptly changing needs of business, uncertainty imposed by legal challenges to the tariffs and Mr. Trump’s erratic behavior, and the upcoming reassessment of the free trade deal with Canada and Mexico.
AI is profitable even if OpenAI isn’t.
Rival Anthropic appears on track for profitability by 2028, and businesses that make hardware, such as Nvidia, and design agents to boost performance, such as Adobe and Sintra AI, are profitable now.
This should be the year productivity really takes off, and profitability spreads more broadly among large-cap stocks.
Whereas the Magnificent Seven dominated equity appreciation over the past several years, the focus will shift to the 453 other companies in the S&P 500. Their profits are forecast to grow by 12.5%, up from 7.2% the prior two years.
This is the cutting edge of a broader bull market.
Some companies face challenges: Ford and General Motors with overpriced products; others, such as General Mills and Campbell, with stale offerings; and exporters such as California wineries and Southern distillers, hit by the foreign backlash against Mr. Trump’s tariffs.
For businesses with innovative products and sharp customer focus, AI enables them to do more, faster, with fewer people.
As with the transcontinental railroad, AI will create vast new fortunes, but it could herald a second Gilded Age with mean times for ordinary workers.
AI is displacing so many lower- and mid-level white collar positions that it leaves those remaining employed with little leverage in wage negotiations.
During the early COVID-19 recovery, lower-income workers made larger after-tax wage gains than middle-income workers, who in turn outperformed the top one-third.
In 2025, that flipped, and the lower half of those still employed are not outrunning inflation.
Holiday shoppers flocked to buy-now, pay-later services and increasingly purchased secondhand goods for gifts.
The largest overall income gains are going to established households with jobs secure from AI, low-interest mortgages obtained before the Federal Reserve pushed up interest rates, and large stock portfolios and tax-sheltered retirement accounts.
In 2025, American publicly traded companies added nearly $11 trillion in value, and the wealth effect should add $375 billion to $535 billion to consumer spending.
The top 25% of earners now account for two-thirds and a growing share of household spending.
Also, those stock market gains help Big Tech underwrite primary AI research and data centers and provide capital for startups creating agents.
A virtuous cycle of accelerated productivity growth, new wealth and reinvestment in innovation is emerging, but with benefits precariously concentrated among the few.
Nervousness about OpenAI and data centers overbuilding could give rise to a stock market panic, and a good deal of support for consumer spending and broader investment in AI throughout the economy could evaporate.
During the internet boom, businesses such as WorldCom and Global Crossing borrowed to overspend on fiber-optic networks. Their bankruptcies didn’t keep Amazon, Google, Meta and others from emerging as powerful technology companies that are today vital to American innovation.
Other real dangers include erratic regulations and difficult compliance costs.
A tragic example includes Mr. Trump stopping wind and solar projects when the country and AI need more electricity.
Certainly, make green energy compete with traditional sources on a level playing field, but don’t terminate it with a White House laser gun.
Peter Navarro’s vision of tariffs precisely fine-tuned to promote industrialization is creating a regulatory quagmire at the border — for example, tracking down the steel and aluminum content of many complex products.
Often, the products small businesses need are not available in the United States, and their imports are held up or sometimes destroyed by customs agents.
In 2025, bigger firms added to head count.
Those with fewer than 500 workers employ nearly half the workforce but struggle, often shedding employees to cover the costs of complying with tariffs and regulations.
Too much government: President Trump, didn’t you campaign against that?
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
Please read our comment policy before commenting.