Economist Warns of ‘Paradox’ in US Economy

Despite robust economic expansion and soaring returns for American investors, a leading economist has highlighted a concerning “paradox” developing within the U.S. economy.

In a recent interview with Bloomberg Businessweek Daily, Gregory Daco, a chief economist at Ernst & Young, warned that strong top-line indicators, such as AI-fueled growth and stock market gains, may be diverting attention from the economy’s consumer-level weaknesses.

This “paradox,” he said, had concealed significant “underlying fragility,” particularly in the incomes of lower- and middle-class Americans—the “fundamental pillar of economic activity”—while underscoring the “real downside risk” for the economy should the AI boom give way to a “bust.”

Why It Matters

The administration has held up measures such as GDP growth and record-high stock valuations as evidence that its economic agenda is already bearing fruit. But experts have, in recent months, issued several warnings about America’s economic trajectory, prompted by precarious labor market conditions, dot-com-era excesses in equity markets, and increasingly acute concerns over the nation’s fiscal health and mounting national debt.

What To Know

On Saturday, Daco cited a handful of indicators, such as GDP growth and rising stock prices—both reflecting and increasing the wealth of affluent Americans—as currently sustaining confidence in the U.S. economy.

According to the latest estimates from the Commerce Department’s Bureau of Economic Analysis, the economy expanded 4.4 percent year-over-year in the third quarter of last year, surpassing consensus forecasts. And while economists and international institutions expect an annualized rate of 2 to 3 percent for 2026, administration officials, including Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick, have forecast that GDP growth could climb as high as five percent this year.

And the White House has been equally bullish on the stock market, with trade adviser Peter Navarro declaring that the Dow Jones recently passing the 50,000 milestone was a “triumph” of “Trumponomics.”

“Dow 50,000 is not the end of the story. It is the market beginning—once again—to price in American prosperity under Trump-style economic leadership,” Navarro wrote in an article for RealClearMarkets.

But Daco said that the economy was currently being kept afloat by three “A-pillars”: Artificial intelligence-fueled growth, asset price gains, and affluent consumers. At the same time, he noted that a “polarized” reality lay beneath these currently healthy signals.

“The reality is that there is polarization across the U.S. economy,” he said. “Whether you’re looking at certain income groups—not just the lowest income groups, but the median income groups—they are increasingly struggling with high prices.”

Daco went on to cite high levels of consumer debt, weak income growth and the reliance of many consumers on credit to afford essential purchases as evidence that while the economy is doing well on “average,” the majority are facing the consequences of its “underlying fragility.”

What People Are Saying

Ernst & Young Chief Economist Gregory Daco told Bloomberg Businessweek Daily: “When you look at business investment, there is polarization between those that are focused on AI investment and those that are not. There is polarization between large businesses and small businesses that are struggling more in the face of some of these policy headwinds. So it’s not necessarily a K-shaped economy as much as it is a polarized economy within which you’re still seeing strong averages.”

What Happens Next

Most economists are predicting comparable economic growth to 2025 this year, though some have cautioned that less affluent consumers will continue to grapple with rising prices and a slowdown in the labor market.

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