The AI revolution is here, but not everyone is feeling the benefits. While tech giants like Nvidia and Alphabet are leading the charge, with their stock prices soaring and contributing to a booming economy, small businesses like Norton's Florist are struggling to keep up.
In Birmingham, Alabama, Cameron Pappas, the owner of Norton's, is facing a very different reality. Despite the AI-driven economic growth, Pappas is navigating a challenging landscape. The Trump administration's tariffs have increased costs for businesses, and consumers, feeling the pinch, are cutting back on spending.
"We're keeping a close eye on every expense," Pappas, 36, shared with CNBC. With revenue of $4 million last year, Norton's is a local favorite for flowers, plants, and gifts. To avoid price hikes that could drive customers away, Pappas has had to get creative, tweaking his designs to keep costs down.
"If a bouquet has 25 stems, reducing it by a few stems allows us to maintain the price," Pappas explained. It's a delicate balancing act, ensuring the business remains competitive without compromising quality.
But here's where it gets controversial: the macro data, driven by AI, masks the struggles of small businesses like Norton's. According to JPMorgan Chase, AI-related capital expenditures contributed to 1.1% of GDP growth in the first half of the year. This spending outpaced the U.S. consumer, creating a disconnect between the AI-driven economy and the rest of the market.
The stock market reflects this divide. Eight tech companies valued at $1 trillion or more are tied to AI, making up a significant portion of the S&P 500. Yet, the consumer discretionary and staples sectors have seen modest growth, with companies like Target announcing layoffs.
Arun Sundararajan, a professor at NYU's Stern School of Business, warns, "The AI economy is driving GDP numbers, but the rest of the economy may be experiencing more modest growth."
As investors eagerly anticipate tech earnings, the question arises: is the AI-driven growth sustainable? Or are we setting ourselves up for a future crash?
For local businesses, the AI gold rush is a distant dream. A KeyBank Survey reveals that one in four small business owners are in survival mode, grappling with rising costs and tariffs.
Pappas' flower shop, a Birmingham institution since 1921, has weathered the Great Depression, World War II, and the Covid pandemic. But Trump's tariffs have brought new challenges, with roughly 80% of cut flowers in the U.S. imported from countries like Colombia and Ecuador.
"It's tariff price management," Pappas said, explaining his strategy to source flowers directly from South American growers to bypass extra distributor costs.
According to S&P Global, Trump's tariffs will cost global businesses over $1.2 trillion this year, with most of the burden passed onto consumers. With the holiday season approaching, consumer sentiment is a key concern.
A Deloitte survey shows that 57% of U.S. consumers expect the economy to weaken in the year ahead, a bleak outlook. Seasonal hiring in the retail industry is at its lowest since the 2009 recession, and companies like Starbucks and Wyndham Hotels are feeling the impact, with layoffs and store closures.
Even in the tech industry, companies are conducting layoffs, with Microsoft and Salesforce citing AI as a reason for reduced headcount. Hatim Rahman, an AI specialist at Northwestern University, cautions that AI is not an instant fix.
"AI is not a plug-and-play solution. It takes time and engagement with people, processes, and culture to reap the benefits," Rahman said.
So, while the AI boom lifts the stock market, it may be masking a weaker economy. The question remains: can the AI-driven growth sustain itself, or is a recession looming on the horizon?
