BND Scope: Issue 16 - US Growth: Strong at the Top, Fragile at the Bottom

A phrase that’s being used a lot lately to describe the US economy is “K-shaped economy.” The metaphor is this: within the same economy, one group of people and sectors shoots upward like the top leg of the letter K, while another group moves downward or flatlines like the lower leg. Headline growth doesn’t look bad, but the gap between winners and losers keeps widening.

Data from Newsweek and USA Today make this picture very concrete. In the second quarter of 2025, almost half of total consumer spending came from the highest-income group. Households in the top income brackets, supported by stock-market gains, rising home prices and especially the performance of tech/AI stocks, continue to spend on categories like restaurants, travel and luxury goods. In contrast, middle- and lower-income groups are tightening their belts in almost every category, from food to rent and other essentials. Credit-card debt is rising, “buy now pay later”-type installment schemes are being used more often, and the savings rate is hovering near its lowest levels in the post-pandemic period.

So the sentence “the US economy is growing” is technically true, but what it really means is this: a significant share of that growth is concentrated in higher income groups and asset-owning segments. For middle- and lower-income groups, the picture looks much greyer and more fragile.

Conclusion

The sentence “the US is growing” no longer tells us very much on its own. As soon as you ask “which income group, which sector, which region?” the picture changes dramatically. For higher income groups and technology-heavy assets, there is still something like a “mini golden age”; for middle- and lower-income groups, the environment increasingly resembles stagflation—that is, a combination of low growth and high prices.

As long as the gap continues to widen between the engines driving growth (AI, defense, critical minerals, infrastructure) and more traditional sectors, the K-shaped pattern may become a permanent feature of the economy. That will force both policymakers and companies to take more targeted, more selective actions in the period ahead. This divergence cannot be fixed with broad-brush interest-rate and tax policy alone.

For investors, this is not a comfortable bull market where “everything goes up.” It is an in-between phase that demands selectivity, careful cash management and readiness for more than one macro scenario. Areas like AI and strategic minerals offer meaningful opportunities; but it makes sense to position with the understanding that growth built heavily on these themes is also fragile—remaining open to both downside and upside surprises.

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Recession debates are revolving around this very divergence. A recent Business Insider analysis notes that even though the main macro indicators still look “okay on the surface,” the mechanics of a de facto recession seem to have started in a number of sectors. In areas such as residential construction, commercial real estate and restaurants, employment is weakening, profit margins are shrinking and new investment plans are being shelved. In short: “no official recession yet, but things look pretty bad in parts of the economy.”

Signals from the Fed are consistent with this picture. Fed Board member Christopher Waller has warned about layoffs at large companies reaching worrying levels and says that if this pattern continues for a few more months, today’s gradual slowdown in growth could turn into a full-blown recession. The key point he underlines is this: you can always cut interest rates later to relieve price pressures, but once the labour market falls below a certain threshold, it becomes much harder and slower to bring those lost jobs back.

In other words, headline macro indicators like GDP and employment still don’t show a “collapse,” but especially in labour-intensive sectors, the risk of a quiet, under-the-radar recession is clearly rising.

At BND Consulting, we’re here to support your investment decisions with insight, clarity, and strategy. Reach out to us any time—we’re ready when you are.

In the second half of November, the headline indicators still say “growth, not recession”; but once you look under the surface, you see three things at the same time: a growing divide in income distribution, a quiet contraction in some sectors, and a growth story that is becoming heavily dependent on artificial intelligence (AI) investment. In previous issues of BND Scope we inevitably focused more on the Fed’s decisions and interest rate policy; in this issue, we take a closer look at the real economy, the composition of consumption, and emerging investment trends.

K-Shaped Economy: The Rich Get Richer, the Poor Fall Further Behind

A Quiet, Sector-by-Sector Recession:
Headline Indicators Hold Up, Underlying Reality Weakens

After the Shutdown:
A Flood of Data, a Blurred Picture and Political Risk

Once the government shutdown ended, the opposite problem appeared: after weeks of almost no data, we suddenly saw everything come out at once. CNN described this as a “flurry of data,” and instead of clarifying the outlook, it arguably made things even more confusing. The delayed inflation and retail numbers for September were finally released: they show no meaningful momentum in real sales, and some indicators even point to slight weakening. In other words, the total dollar amount going through the tills is rising, but the actual volume of goods and services sold is not; people aren’t buying more, they’re just paying more for the same things.

The labour market saw a similar “delayed shock.” When the September jobs report—postponed for weeks due to the shutdown—was finally published, it showed 119,000 new jobs created, but also that the unemployment rate had climbed to its highest level in several years. That suggests the “low-hire, low-fire” narrative policymakers have relied on is starting to crack. For a long time, companies weren’t hiring aggressively, but they also weren’t doing mass layoffs, which kept the market in a “sluggish but stable” equilibrium. Now, in some sectors, that balance is breaking down: the number of new positions being opened is falling, and more companies are starting to reduce their existing headcount.

Some critical data simply won’t show up at all. The October inflation report (CPI) has been cancelled outright; the statistics office has said it could not collect enough data during the shutdown and that reconstructing it in a reliable way after the fact is not feasible. A full jobs report for October will not be published either; whatever limited information exists will likely show up inside the November report, in more compressed form. That means when the Fed sits down in December to debate a rate cut, it will be missing one key data set entirely and will have to work with delayed and incomplete information for another.

On top of this comes a gap on the growth side. The “advance estimate” of third-quarter GDP—the initial, quick read on growth—has also been cancelled. Normally, this report is a key reference point for both the Fed and markets in judging whether growth is speeding up or slowing down. Now both the Fed and investors are essentially being forced to “guess” the pace of growth. Outlets like Newsweek have also noted that this is not seen purely as a technical delay: it has sparked political questions such as, “Is the report being withheld because growth is weaker than advertised?”

In short, the shutdown is over, but the real uncertainty began afterwards. The data are coming in rapid succession, but the picture isn’t getting clearer. Inflation is neither fully under control nor at a level where anyone can safely say “it’s over”; the labour market is neither collapsing nor comfortably “strong”; and on the growth side, we don’t even have a proper first snapshot. Under these conditions, if the Fed cuts rates, it opens itself up to criticism for “moving too fast without the data”; if it doesn’t, it risks being accused of “choking an already slowing economy in the dark.” The shutdown has ended, but policy pressure and the risk of political interference are arguably only just beginning.

Artificial Intelligence: Engine of the Economy or Source of Dependence?

Now to a very different story: AI investments. The AI Magazine piece titled “Has the US Economy Become Dependent on AI Investment?” argues that growth is increasingly tied to the investment plans of the big tech firms—Microsoft, Amazon, Alphabet, Meta and Nvidia. A term that comes up constantly here is “AI capex,” meaning the capital expenditure companies make specifically for AI: new data centres, servers, GPU clusters, power infrastructure, cooling systems, network equipment and other long-lived physical assets.

These five giants are building massive data centres and AI infrastructure across the US. Those investments feed straight into GDP; at the same time, they support the tech stocks that make up a large share of the S&P 500. Nokia’s announced 4 billion dollar AI and 5G investment in the US and Amazon Web Services’ plan to invest up to 50 billion dollars in AI and supercomputing infrastructure for US government agencies are just two examples of this wave.

The risk is this: as traditional sectors like manufacturing, construction and conventional services slow down, leaning almost entirely on AI and tech spending to drive growth effectively turns the economy into a “single-engine aircraft.” If companies decide—because of costs, regulation or demand—to hit the brakes even slightly, that one engine slowing could slam both growth and stock indices into the wall at the same time. In other words, AI currently functions like the engine of the US economy, but it also carries the risk of becoming a growing dependence.

From Rare Earths to Defense: Geopolitical Investment Plays

On the strategic investment side, one of the most striking developments is the joint venture between MP Materials and Saudi Arabia’s mining company Ma’aden, which will build a new rare earths refinery in the Gulf with financial backing from the US Department of Defense. Rare earth elements are critical inputs for precision electronics, radars and missile systems in the defense industry, as well as for electric vehicle motors and wind turbines in the clean-energy space.

The goal of this project is to reduce dependence on China-centric supply chains in these crucial materials and to diversify sourcing toward partner countries. So this is not just another “investment announcement”; it is a strategic move in terms of geopolitical risk management, industrial policy and the energy transition. It supports real-economy activity like construction, engineering and equipment manufacturing, while at the same time reinforcing the US’s long-term power projection. This domain is shaping up to be one of the “niche but deep” opportunity sets in the coming years.

Bondholders Are Calm, Equity Investors Are Nervous

Despite all this uncertainty, global capital’s view of US assets is surprisingly calm. In Investopedia’s analysis “Sell America is Over—Global Investors Are Sticking With US Treasurys,” the oft-asked question from earlier in the year—“Are foreign investors dumping US Treasurys?”—is answered with hard numbers. Treasury data show that in 2025, foreign investors have increased their holdings of US assets by more than 300 billion dollars on a net basis. In other words, there has been no big bond exodus; on the contrary, there has been a net inflow. Despite high debt, large fiscal deficits and political tension, US Treasurys are still seen globally as the “ultimate safe haven.”

On the equity side, the picture is much more tense and volatile. In Reuters coverage of the cracks emerging in the AI-driven rally, surveys from the American Association of Individual Investors (AAII) show a clear drop in optimism, while market volatility has risen over the same period. On one side, there is a powerful, long-term “AI story” underpinning the economy and corporate earnings; on the other, especially among smaller investors, the feeling that “maybe we’ve run too far, too fast” is gaining strength. The same Reuters reports suggest that the post-pandemic “buy the dip” reflex has weakened: when indices pull back, retail investors no longer step in with the same intensity as before, while the inclination to stay in cash or rotate into bonds is increasing.

In short, institutional money is not walking away from US Treasurys; that tells us there is no systemic crisis of confidence. But in equities—especially AI-centric tech names—bubble talk and individual investors’ caution are hard to miss. That points to a market regime ahead that is more volatile and more sensitive to headline news.