Why the U.S. economy is stronger than you might think

The U.S. economy is outperforming expectations, with Capital Group economist Jared Franz projecting 2.5% to 3% growth this year and next. This resilience stems from a robust labor market, healthy consumer balance sheets, and significant corporate investment in artificial intelligence.

Franz highlights a surprisingly strong jobs report, adding 162,000 jobs in August, which has supported consumer spending despite inflation. Consumer balance sheets remain healthy, with wage growth outpacing price increases, bolstered by stock market gains and home equity. The AI boom, with an estimated $800 billion in spending this year on data centers and related projects, provides substantial economic stimulus.

Franz believes the economy is in a mid-cycle phase, which historically favors stock prices. However, he cautions that risks like geopolitical escalation, higher oil prices, or AI investment underperformance could shift this outlook. The article suggests continued Fed rate hikes are likely, as the economy appears strong enough to absorb them.