The US economy is not broadly strong; its perceived strength is almost entirely driven by a massive, concentrated bet on AI. This singular focus props up markets and growth metrics, but it conceals widespread weakness in other sectors, creating a high-stakes, fragile economic situation.

Don't dismiss megatrends like demographics and technology as only long-term concerns. Research from Vanguard's Joe Davis shows these forces account for roughly 60% of quarter-to-quarter changes in per capita GDP growth and earnings yield, making them immediate drivers of the business cycle.

The narrative of AI destroying jobs misses a key point: AI allows companies to 'hire software for a dollar' for tasks that were never economical to assign to humans. This will unlock new services and expand the economy, creating demand in areas that previously didn't exist.

Instead of fearing job loss, focus on skills in industries with elastic demand. When AI makes workers 10x more productive in these fields (e.g., software), the market will demand 100x more output, increasing the need for skilled humans who can leverage AI.

Joe Davis argues the economy faces a "tug of war" between an AI-driven boom and a deficit-fueled slump. He believes the mainstream forecast of stable 2% growth and 2% inflation is the least likely outcome, with an over 80% chance of a material change in the economic environment.

The initial impact of AI on jobs isn't total replacement. Instead, it automates the most arduous, "long haul" portions of the work, like long-distance truck driving. This frees human workers from the boring parts of their jobs to focus on higher-value, complex "last mile" tasks.

To prepare for AI's career impact, Vanguard's chief economist advises using it as much as possible now. This not only increases your immediate productivity and value but also acts as an early warning system, revealing if your role is truly vulnerable to automation and giving you time to adapt.

AI's contribution to US economic growth is immense, accounting for ~60% via direct spending and indirect wealth effects. However, unlike past tech booms that inspired optimism, public sentiment is largely fearful, with most citizens wanting regulation due to job security concerns, creating a unique tension.

Most AI applications are designed to make white-collar work more productive or redundant (e.g., data collation). However, the most pressing labor shortages in advanced economies like the U.S. are in blue-collar fields like welding and electrical work, where current AI has little impact and is not being focused.