Neil Dutta & Skanda on Why the Recession Signals Are All Wrong

The U.S. economy currently navigates a unique cycle defined by a massive AI-driven capital expenditure boom that complicates traditional recession forecasting. While consumer spending remains resilient, fueled by equity market gains and corporate investment in data centers, a significant divergence persists between record-high corporate profits and stagnant worker compensation. This disconnect, where labor’s share of gross domestic income has hit historic lows, fuels widespread economic dissatisfaction. Although the labor market shows signs of stabilization, persistent supply-side inflation and the concentration of growth within tech-adjacent sectors challenge the Federal Reserve’s policy outlook. Investors must monitor credit spreads and corporate willingness to sustain AI spending, as these metrics serve as better proxies for business cycle health than outdated leading indicators. The current environment reflects a "risk-on" mentality that defies standard models, leaving the Fed caught between supply-driven inflation and uneven economic growth.