The Two-Track Economy: AI Keeps Growth Going While Households Get Left Behind
The St. Louis Fed's October Beige Book and Bloomberg's Big Take converge on the same picture: AI data-center buildout sustaining growth, non-wage costs squeezing margins, and middle-income households now seeking aid.
- The October Beige Book review described moderate gains in the Dallas and Richmond districts with most other districts seeing only slight to modest gains; manufacturing in the 8th District is being driven by data centers, energy construction, defense production and industrial engineering. m:…2453
- Lindo-Briggs said nonprofits are seeing increased demand from middle-income households: "It's not just low-income families anymore. We're talking about middle-income households now needing assistance too." m:…2453
- Bloomberg's Boesler said on Big Take: "As long as that [AI data center build-out] continues, things can keep going the way they're going in a pretty self-sustaining fashion." while noting higher financing costs are hitting hyperscalers. m:…8324
- Bloomberg's Lindblad said: "We've seen real wages declining all year since the Iran war started with this surge in energy prices and now what looks to be broadening out in inflation." m:…8324
- Sarah Holder described a split economy: "We kind of have this situation where we do have a large group of people who are doing fine. And we also have a large group of people who are kind of locked out of these like basic elements of the American dream." m:…8324
- Telsey Advisory Group founder Dana Telsey told Bloomberg that consumer spending remains resilient but split — selective choices among lower-income households versus sustained discretionary spending by upper-income groups — naming "AI, affordability, activation, assortment and agility" as 2026's themes. m:…3175
Growth, but only in pockets
The St. Louis Fed's October Beige Book review described growth that is steady but narrow. "The strongest activity came from the Dallas and Richmond districts, both of which reported moderate growth, while most other districts saw only slight to modest gains." the review noted. Manufacturing and AI-related infrastructure are doing the heavy lifting. m:…2453
Bloomberg's Big Take, with reporters Boesler and Lindblad, landed in the same place. Boesler argued the AI investment wave is doing real work: "As long as that [AI data center build-out] continues, things can keep going the way they're going in a pretty self-sustaining fashion." But he added that higher financing costs are now biting the hyperscalers doing the building — the engine has fuel, but the fuel is getting expensive. m:…8324
The squeeze underneath
While AI infrastructure grows, the Beige Book conversations describe businesses and households under pressure. Gaskin and Lindo-Briggs noted that inflation and rising non-wage labor costs — healthcare in particular — continue to squeeze business margins, and that some companies are using tariff rebates to delay passing price increases to customers. The labor market is stable, with wage growth settling into a moderate pace and AI-driven productivity gains reducing the need for workforce expansion. Sentiment among business contacts is cautiously positive but restrained by ongoing inflation and energy cost concerns. m:…2453
The striking detail was who is now hurting. Lindo-Briggs said nonprofits are reporting increased demand for assistance from middle-income households, not just low-income families: "It's not just low-income families anymore. We're talking about middle-income households now needing assistance too." When the safety net's customer base moves up the income ladder, the official growth numbers and the lived experience are describing two different economies. The housing data sharpened the point: pending home sales are at their lowest since 2014, excluding the start of the 2020 pandemic, and mortgage rates have surged from under 7% to 7.5% over the last four to six weeks. m:…2453 m:…8324
Who is this economy for?
The Big Take economists framed the result as a K-shaped recovery: those with existing assets or jobs are doing well, while others are locked out. Strong consumer spending is currently driven by upper-income consumers benefiting from stock market gains linked to the AI boom, while real wages have been declining throughout the year on the surge in energy prices following the war in Iran, with CPI up 3.7 percent year-over-year. Sarah Holder: "We kind of have this situation where we do have a large group of people who are doing fine. And we also have a large group of people who are kind of locked out of these like basic elements of the American dream." m:…8324
A third voice, retail analyst Dana Telsey of Telsey Advisory Group, described a bifurcated consumer on Bloomberg: discretionary money remains available for upper-income consumers, and Walmart's fastest growth is coming from high-income household segments. She flagged Target's stock up over 50% this year on new assortments and collaborations, LVMH's fashion and leather goods segment underperforming on weak Chinese consumer demand, and GLP-1 usage driving ongoing changes and purchases in apparel wardrobes. m:…3175
What is still unresolved
- How long the AI-driven data center build-out can sustain current growth — an open question flagged by both shows.
- Whether stock market turbulence is a temporary breather or a sign of cooling investment.
- The extent of middle-income household strain across all Federal Reserve districts.
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