So… Is the Economy Actually Okay?

Originally published in the Kitsap Sun, this article was updated with information from KEDA’s Annual Meeting and Economic Forecast on April 9. 

My new favorite pastime is filling up my gas tank whenever it’s half full. That and monitoring prices per gallon like I never have before.

Warning Signs Are Hard to Ignore 

Related, on Tuesday Goldman Sachs increased their probability of the US entering a recession this year to 30 percent. That same day Mark Zandi, chief economist at Moody’s Analytics, said his firm’s model now forecasts recession risk at 49 percent, “pointing to stagnant retail sales, declining vehicle purchases, and weak home sales as evidence that consumers are struggling,” according to Seeking Alpha. 

While Moody’s is the most bearish of them all, they are something of an outlier. Despite increasing risk, most economists believe it remains unlikely the US will enter into recession this year. Remarkable. It’s amazing the body blows our economy can take and keep barrelling along. 

Over the course of the past year-plus, the US economy has absorbed increasing risk. About a year ago many of us were shook by the implementation of sudden, unclear, volatile tariff policies. American firms and consumers gritted their teeth, moving on while paying for 90 percent of those cost increases. Last week the national debt passed the $39 trillion mark, about 1.25 times more than the US produces each year in GDP.  Demand for office space has plummeted, particularly in US downtowns, where the value of many commercial buildings has dropped by almost 50 percent in five years.

The Big Bet on Artificial Intelligence 

Despite all this, despite war, our economy currently seems to be handling all of this risk. I’d argue that right now the economy is also absorbing an even larger risk almost totally unique to America: The titanic valuation we’re placing on Artificial Intelligence. In 2025 the US poured a half-trillion dollars into building new data centers. AI startups raised $150 billion, and later-stage private and corporate strategic investments push that number even higher. I’m less worried about AI blowing up every job in the nation, and more worried about it potentially blowing up the US stock market

For most of the last year just seven stocks in the S&P 500 made up 30% or more of that index’s value, and at times represented up to 40% of the index’s returns. You know the names: Nvidia, Amazon, Microsoft, Apple, Tesla, Meta, Alphabet. Our nation’s largest tech firms are also massive AI bets. The implication: AI is an investment so colossal that returns will be in the trillions for the winners. AI holds the economic potential of the Internet, or is even bigger, the thinking goes.  

Why This Might Feel Familiar

I agree we might get there with AI, but seem to be one of the few who think it could take a decade or more. Not because of the pace of technological advancement, which will no doubt be exponential, but because it might take us that long to figure out how to monetize AI successfully. I could see a world emerging where we have only a few early AI commercial successes, followed up by plenty of failures, making AI an investment that’s realized over time with fits and starts. Perhaps it’s wrong to draw this parallel, but maybe we have seen this movie before. That’s exactly what happened with the Internet: It gained traction in the early 90s, exploded in the latter half of the decade, then collapsed from 2000-2002 when those investments failed to result in real revenues, destroying underlying valuations of firms that couldn’t justify them. It took another decade or more for winners to emerge.

When I think about the US economy, all of this is what’s on my mind right now. I can’t help but wonder how we are pulling this off. Many economists share that frustration, but are in no way willing to declare an upcoming economic crisis. 

What It Means for Kitsap

At KEDA’s Annual Meeting and Economic Forecast on April 2, economists Hart Hodges and James McCafferty of Western Washington University were unenthusiastic about the US economy, and Washington’s, but were not forecasting economic doomsday. They agreed their economic forecast for 2026 could be described as “slow growth, no recession.” They also pointed out that Washington, among the top performing state economies over the last two decades, was now starting to see slower job growth, mirroring a trend across the nation. My take is more optimistic: With our defense-oriented economy and upcoming billions of federal investment planned for the Bremerton shipyard, Kitsap remains one of the best places to be in the nation when it comes to the national economy. 

In the spring of 2010, the Great Recession barely behind us, I was visiting Orlando and found myself in a giant big-box retail park. A bunch of stores butted up right next to each other, stretching on for what felt like a linear mile. A handful of cars were there, dwarfed by the enormous parking lot. 

I walked in and out of quiet, dead stores. Every time I opened a pair of doors, I found eager smiling staff, full inventories, and virtually no customers. Just American consumerism waiting to pounce. What a luxury, I thought, we can afford all this as a nation. And that’s when I saw it, just a tiny sliver of it, the most powerful force in the world: The American economy.  

Joe Morrison is Executive Director of the Kitsap Economic Development Alliance.