AI Spending Is Propping Up the U.S. Economy. What Happens If the Data Center Boom Cools?

Photo: Zulfugar Karimov / Unsplash

Artificial intelligence is no longer just a technology story. It has become one of the main forces holding up the American economy. The Commerce Department’s first estimate of third-quarter growth, released at the end of October, showed the economy expanding at a 3.4% annual pace from July through September, and the Associated Press reported that the gain was powered by strong consumer spending and a boom in AI investment. Then, a week later, the midterm elections raised fresh doubts about how long the data center building spree can last. For households, workers and small businesses, the result is an economy leaning heavily on one industry at the very moment that industry faces new political and financial headwinds.

What the numbers showed

The 3.4% growth rate beat the 2.2% pace of the spring quarter and came in above the 3% that economists surveyed by FactSet had expected. The details tell the AI story clearly.

• Business investment outside of housing jumped 12.7%.
• Information processing equipment, the category that includes the servers and chips filling AI data centers, surged 37.4%, the biggest gain in the report.
• Software investment rose 9.6%, and research and development climbed 7.5%.
• Consumer spending, the largest part of the economy, grew 3.8%.
• Housing investment fell 3.3%, its sixth decline in the last seven quarters, which AP attributed to high mortgage rates.

AP noted that the economy has stayed resilient despite higher energy prices tied to the fighting with Iran. The October report was the first of three Commerce Department estimates for the quarter, so the figures may be revised.

Why AI spending matters to people who never think about it

When a tech company builds a data center, it buys land, hires construction crews, orders steel and concrete, signs power contracts and fills the building with very expensive equipment. All of that counts as investment, and it ripples through local economies. Electricians, trucking companies, equipment makers and restaurants near job sites all feel it.

That is good news when spending is rising. The flip side is concentration. If a large share of growth depends on a single kind of project, any slowdown in that project shows up quickly in the national numbers. AP’s post-election reporting made exactly this point: AI data center construction has become a major driver of U.S. growth, so a pullback could have broad effects.

The election and the market wobble

The early-November midterms delivered a clear signal that many voters want limits on data centers. AP reported that restrictions passed in 44 of 45 completed local referendums tracked by Redbud Consulting, and that most winning candidates for governor support tighter rules. Investors noticed. The tech-heavy Nasdaq fell 11% below its all-time high in the days after the election, as traders worried that higher borrowing costs and new restrictions could slow construction.

Money is part of the story too. Building AI infrastructure takes enormous sums, and much of it is borrowed. When borrowing gets more expensive, projects that looked profitable on paper can be delayed or shrunk. Meanwhile, AP has reported that leading AI developers, including Anthropic, OpenAI and SpaceX’s AI unit, are still losing money, which has kept talk of an AI bubble alive even as the investment keeps flowing.

Other pressures are building in the background. AP has reported that inflation worsened to 3.7% in the run-up to the midterms and that consumer confidence fell to a seven-month low with gasoline stuck above $4 a gallon. A strong growth number does not mean every household feels better off, and many clearly do not.

For readers in New England, the picture is mixed. The region is home to many software, research and engineering employers that benefit from AI investment, while households here, like elsewhere, are watching energy bills closely. That combination, opportunity at work and pressure at home, is a fair summary of how the AI economy feels to many families right now.

Context: booms, bubbles and what is different this time

Economic history is full of investment waves built around new technology, from railroads to telecommunications to the early internet. Each brought real, lasting infrastructure. Some also brought overbuilding, painful corrections and lost jobs when expectations ran ahead of revenue. The honest answer about AI is that no one knows yet which pattern it will follow.

Two things set this cycle apart. First, AI tools are already in wide daily use, from search and email to customer service and coding, so the demand is not purely speculative. Second, the physical footprint is unusually large and local. A railroad or fiber line passes through a town; a hyperscale data center sits in it, drawing power and water. That is why the politics turned so quickly, and why local decisions now carry national economic weight.

Practical guidance

A plain note: this is general economic information, not investment or financial advice. Decisions about savings, retirement accounts or individual stocks should be made with a licensed financial professional who knows your situation.

For households

1. Check your concentration. Many retirement funds hold large positions in big tech companies. Ask your plan provider or adviser how much of your portfolio rides on the same few names.
2. Focus on what you control. Energy costs, subscriptions and interest rates on debt affect your budget more directly than quarterly growth figures. Review them this month.
3. Be wary of hype. Expect a surge of AI-themed investment pitches around big IPOs this season. If someone promises guaranteed returns, walk away.

For small businesses

1. Know your exposure. If you sell to contractors, manufacturers or tech companies tied to data center construction, ask your biggest customers about their plans for next year.
2. Spend on AI where it pays. Before adding new AI subscriptions, measure the time or money each tool actually saves. Cut the ones that do not earn their keep.
3. Avoid long lock-ins. In a fast-changing market, month-to-month or annual terms with clear exit options give you room to adjust if prices or vendors change.
4. Plan for higher borrowing costs. If you are considering a loan for equipment or expansion, get quotes now and model what happens if rates rise further.

For workers

• Skilled trades tied to construction and electrical work have benefited from the buildout. If you are in those fields, keep an eye on whether projects in your region proceed under new state rules.
• Office workers will keep seeing AI tools arrive at work. Learning to use them well, and knowing their limits, is one of the more durable skills you can build right now.

What to watch next

• Revised GDP estimates. The Commerce Department will update the third-quarter figures twice more. Watch whether the AI-driven investment numbers hold up.
• Fourth-quarter spending plans. Big tech companies regularly tell investors how much they expect to spend on infrastructure. Any cut would be a meaningful signal.
• New state rules. Governors and legislatures elected this month will start acting in 2027. Moratoriums or new fees in big markets such as Texas would change where and how fast data centers get built.
• Interest rates. Borrowing costs are central to whether the buildout continues at its current pace.
• Major AI listings. How investors receive large AI IPOs, including Anthropic’s planned debut, will show how much confidence remains in the sector.

The bottom line

The latest growth report is a reminder that the AI boom is no longer happening only on our screens. It is in construction sites, power plants, payrolls and the national accounts. That brings real opportunity and real risk. The best response for families and small businesses is not to bet on the boom or against it, but to understand how exposed you are, keep flexibility in your budget and contracts, and make decisions based on value you can measure.

Source: The Associated Press. Original AP report republished by PBS NewsHour.