We are increasingly seeing a narrower breadth of growth, says EY Parthenon's Greg Daco

• US economic growth is increasingly narrow, relying on affluent consumers, AI investment, and asset price appreciation.
• Real disposable income growth is lagging consumer spending, indicating consumers are drawing down savings and using credit.
• AI investment significantly boosted Q1 GDP and equipment spending, but other sectors are less robust, leading to a 'crowding out' effect.
• The Fed is likely to keep interest rates elevated to combat inflation, even as growth slows, increasing recession risks (currently around 40% over 12 months).

EY-Parthenon Chief Economist Gregory Daco highlights a narrowing breadth of economic growth, driven primarily by affluent consumers, AI investment, and asset price appreciation. He warns of underlying fragilities in consumer spending, declining real disposable income, and increasing recession risks. The Fed is expected to maintain a restrictive stance due to persistent inflation, despite slowing growth.