AI spending is boosting the economy, but many businesses are in survival mode

Economic Overview - The artificial intelligence (AI) boom is creating a disconnect between Wall Street and the real economy, with small businesses like Norton's Florist facing challenges that are not reflected in macroeconomic data [1][3][10] - Total U.S. GDP increased at an annual rate of 3.8% in Q2 2025, rebounding from a 0.5% decline in Q1 [4] Small Business Challenges - Small businesses are struggling with higher costs due to tariffs and reduced consumer spending, leading many to operate in "survival mode" [2][13] - Norton's Florist generated $4 million in revenue last year and has had to creatively manage costs without raising prices [3][15] Impact of Tariffs - Trump's tariffs are projected to cost global businesses over $1.2 trillion in 2025, with most costs passed onto consumers [16] - Approximately 80% of cut flowers in the U.S. are imported, making local businesses vulnerable to rising import costs [15] Consumer Sentiment - A Deloitte survey indicates that 57% of U.S. consumers expect economic weakening, a significant increase from 30% a year ago [17] - Gen Z consumers plan to spend an average of 34% less this holiday season compared to last year, while Millennials expect to spend 13% less [18] Employment Trends - Seasonal hiring in the retail industry is expected to reach its lowest level since the 2009 recession, with new hiring down 58% from the previous year [19] - Major companies like Starbucks and Wyndham Hotels & Resorts are experiencing layoffs and disappointing earnings due to a challenging macroeconomic environment [20][21] AI and Market Discrepancies - Eight tech companies tied to AI are valued at over $1 trillion, comprising about 37% of the S&P 500, with Nvidia alone accounting for over 7% of the benchmark's value [6][7] - Despite the AI boom, sectors like consumer discretionary and staples have seen minimal growth, increasing less than 5% year to date [8] Future Outlook - Experts suggest that while AI is driving GDP growth, there may be underlying weaknesses in other sectors of the economy [10][12] - The integration of AI into businesses is expected to be a gradual process, requiring time and adaptation rather than immediate results [23]