WSJ What’s News - The U.S. Economy Is Hooked on AI Spending

Episode Date: November 25, 2025

A.M. Edition for Nov. 25. Talks to end the war in Ukraine move into a new phase, as a top U.S. Army official meets with a Russian delegation in Abu Dhabi. WSJ national security reporter Robbie Gramer breaks down how peace talks got to this point. Plus, WSJ economics reporter Konrad Putzier unpacks how a reversal in AI euphoria could hit the U.S. economy hard. And Amazon bets that customers are finally ready to buy big-ticket items like cars and Chanel bags on its website. Caitlin McCabe hosts. Sign up for the WSJ’s free What’s News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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Plus, what happens to the U.S. economy if you take away AI spending? Well, things start to look a little less rosy. There are some calculations that basically estimate that about half of GDP growth in the first half of this year is due to AI. And the story is really that without AI, there really isn't growth in many other parts of the economy. And if you're serious about selling your home, you might need to drop the price. It's Tuesday, November 25th. I'm Caitlin McCabe for The Wall Street Journal, and here is the AM edition of What's News. The top headlines and business stories moving your world today. We begin with the latest in the complicated push for peace,

in Ukraine. We are reporting that Army Secretary Dan Driscoll met with a Russian delegation in Abu Dhabi yesterday, with more discussions continuing today, in a sign that peace talks have entered a new phase, including direct talks with Moscow. Driscoll is well-liked by the administration and has been called a killer in the past by President Trump. His role here is a departure from his usual focus on training soldiers. But it highlights how White House officials believe Russia and Ukraine might be more receptive to military broker negotiations and comes after U.S. allies scrambled to respond to the leak of President Trump's 28-point peace plan, which was widely seen as heavily weighted in Russia's favor.

This plan drops a lot of people in Washington, a lot of people in Ukraine, and in the rest of Europe are shocked. And it sparks this flurry of diplomacy and a lot of anxiety. Bath's journal National Security reporter Robbie Gramer. He says Trump ordered envoys Steve Whitkoff and Jared Kushner to start drafting a plan last month, similar to the one that paused fighting in Gaza. Kushner and Whitkoff drafted it up and then brought in a Kremlin insider, someone really close to Putin, Russian financier named Kareel, Demetriov. They brought him to Miami for a few days of secret talks to hash things out. And a few weeks later, they then brought in one of Ukrainian president, Vladimir Zelensky's top aides, Rustim Uvmarov, for consultations.

Just a couple days after that, the plans leaked and this diplomatic firestorm started. And since then, the United States dispatched Marco Rubio, Trump's acting national security advisor and secretary of state to Geneva to hash out talks with the Ukrainians, European leaders who were at a G20 summit in South Africa, scramble to create their own counterproposal, and the talks in Geneva seem to yield positive results for both sides. Robbie noted that how this has played out has given some insight into how Trump approaches foreign policy. He relies on this small group of advisors. He says, bring me a big and bold plan. Let's shake things up. Let's, you know, break up the status quo and see what happens. And of course, that leaves American officials, U.S. allies, even lawmakers in the dark.

They can be shocked. They can be frustrated. They can say the administration is only adopting Russian talking points here. All of that happened. But it does offer a. window into how Trump operates and how Trump at least assesses he can possibly finally bring an end to this war in Ukraine, which on the campaign trail, he vowed to do from day one. At the same time, the war shows no signs of slowing, with Russia launching a wave of attacks on Ukraine today, killing at least six people in strikes that hit city buildings and energy infrastructure. And a Ukrainian attack in southern Russia killed three people and damaged homes. We are exclusively reporting that House Speaker Mike Johnson has warned the White House that most Republicans are opposed to extending the enhanced Affordable Care Act subsidies.

The message from Johnson came in a phone call with administration officials, just as reports indicate Trump's advisors have been drafting a plan for a temporary two-year extension paired with reforms, including income caps to limit who qualifies for the aid. 20 million Americans face a sharp spike in health care costs if Congress fails to act by the mid-December deadline. Democrats have said they will introduce an amendment giving Republicans an opportunity to extend the tax credits for a three-year period. The primary hurdle for many GOP lawmakers is the taxpayer-funded portion of the subsidies, which go toward health care plans that cover abortions, which they view as a red line. When you think about the U.S. economy over the past several months, you'd be forgiven for feeling confused by all the mixed signals. Encouragingly, economic growth has been strong, but the job market is cooling and inflation is still elevated. It's no secret that the current artificial intelligence boom has been driving a lot of that economic growth. But as journal economics

reporter, Conrad Putsier explains, it might be accounting for more growth than you think. think. In essence, if you take away AI spending, the economy looks in worse shape. And that's only adding to fears of an AI bubble that have recently taken hold in financial markets. Conrad, I think we all know that AI is helping to juice the economy. I mean, I'm just thinking of the sheer number of data centers that are being built alone. But how dependent is the American economy on AI? It's become a lot more dependent in the last year. So just to be clear, it's still a small part of the overall economy, but it's a big part of the economic growth that we're still seeing. There are some calculations that basically estimate that about half of GDP growth in the

first half of this year is due to AI, which is a pretty high share, if you think about it, because it's really just one industry. And the story is really that without AI, there really isn't growth in many other parts of the economy. AI is really the one big part that's growing right now where a lot of spending is happening other than perhaps health care. And that is really important. helps explain one of the big mysteries of this year, which is why is the economy in such good shape despite tariffs and despite continued to high interest rates? And a lot of economists early in the year were basically predicting that we would see much slower growth, perhaps even a recession, and they were wrong. And the reason they were wrong is because of AI, because AI spending

just increased so dramatically that it kept the economy growing despite all these other headwinds that we're seeing. Conrad, I think one important part of all of this also is the rising U.S. stock market. You have this really fascinating stat in your story from J.P. Morgan Chase, which calculated that rising prices of AI stocks alone boosted consumer spending by over 180 billion dollars over the past year. That's pretty stunning. Yeah, this is what economists call the wealth effect. So Americans look at their brokerage account and see that their stock portfolio was up and then they feel richer. And that makes them more likely to spend really on anything. And economists estimate that that added perhaps 1% to consumption. in the past year, which doesn't sound a lot, right? Just 1%, but consumption is the vast majority of the U.S. economy, consumer spending accounts for more than two-thirds of overall output.

So if you increase consumption by just 1%, that's a pretty big boost to the economy. And we've seen this two-speed economy where middle and working-class Americans are often struggling these days, especially with inflation and slowing wage growth, whereas wealthier Americans who tend to own more stocks are feeling better because they're really benefiting from this bull market, and they're also spending more.

That's powering the economy. And so then what happens if this AI boom turns to bust? How would we see that ripple through the economy? Essentially what economists think will happen is that all these benefits to the economy from AI will simply reverse, right? So the first hit would be from the stock market. If the stock market goes down by, I don't know, 20 or 30 percent, you could see a hit to GDP growth of like one or one and a half percentage points, according to some estimates.

And this is purely just Americans feeling poorer and spending less as a result. then you might also have a reduction in capital expenditures, right? If the AI bubble pops and companies will have a harder time raising money, will be less likely to invest in new chips and data centers, that would push down investment in the economy, and that could be another hit to GDP. The big question, of course, is will there be any ripple effects to other sectors, right? And the prime example, of course, is the great financial crisis of 2008-2009,

where you had a housing market bust that then ultimately rippled over into financial markets and created this global financial crisis. Economists don't think that this is terribly likely to happen this time just because there isn't as much AI-related debt. So they may not be these spillover effects. But of course, there are still risks that other parts of the financial system might be impacted in ways that we don't currently understand. Conrad, I think all of this begs a pretty big question.

If AI has contributed to so much of the economic growth in America recently, would we technically be in a recession without all of this investment? Some economists think so. Yeah, some economists think that if it weren't for the stock market boom, if it wasn't for all this investment in AI infrastructure, we would already be in a recession. Other economists are more bullish and think we'd still be growing even without all this AI spending growth. But I think what everyone agrees on is that the economy has become a lot more dependent on AI and that things would look a lot worse if it weren't for this boom. That's Journal Economics reporter Conrad Puts here. Thanks, Conrad. Thanks for having me. Coming up, when scouting for Black Friday deals, would you consider buying a Birkenbag or new sedan on Amazon? That story and more.

After the break. At Desjardin, we speak business. We speak startup funding and comprehensive game plans. We've mastered made-to-measure growth and expansion advice, and we can talk your ear-off about transferring your business when the time comes. Because at Desjardin business, we speak the same language you do, business. So join the more than 400,000 Canadian entrepreneurs who already count on us and contact Desjardin today. We'd love to talk, business.

If you're scouring Amazon for Black Friday deals, along with that beard trimmer, weight set, or dog bed, how about an SUV? For a long time, Amazon has been trying to convince companies to sell big-ticket items on its platform, and that seems to be paying off. This year, Black Friday shoppers will be able to browse the Saks Fifth Avenue Shoe Department, as well as Hermes Burkins and Rolex watches from luxury reseller Rebag. Last year, Ford announced that its dealers would offer used cars for sale on Amazon, joining Hyundai and rental car company Hertz. Amazon has been selling pricey electronics and appliances on its website for years, but with increasing competition from the likes of Walmart, Amazon is betting that Americans who hold around 200 million prime subscriptions are willing to buy just about anything online.

E-commerce accounted for more than 15% of retail sales in the second quarter, according to U.S. census data, up from 9% in the same period of 2018. Meanwhile, have you been thinking of selling your home lately? If so, you might need to think twice about your listing price. It turns out many sellers are optimistically pricing their homes based on sales from earlier in the 2020s, but we're just not in that same market anymore. Many buyers aren't fighting deterred by higher mortgage rates and ongoing economic uncertainty. The result, just over 20% of active listings in October, had a price cut. According to data, from Realtor.com, which is operated by WSJParent News Corp. That's generally higher than in the past couple of years and twice what it was during the pandemic. The National Association of Realtor

says listings priced correctly tend to sell faster and get nearly 100% of their asking price. As for listings that sell after a price reduction, well, they typically spend about five times as many days on the market. And that's it for what's news for this Tuesday morning. Today's show was produced by Hattie Moyer. Our supervising producer was Daniel Bach. And I'm Caitlin McCabe for The Wall Street Journal. We'll be back tonight with the new show. Until then, thanks for listening.