Homes struggle, factories thrive: How AI is reshaping the US economy

In July, the US housing market faced challenges as single-family home construction hit its lowest level since November 2022, declining by 9.9% to 808,000 units, with a 15.7% decrease compared to last July. Despite this, permits for future single-family construction improved, rising 2.5% to 894,000 units - the second annual increase in two years. However, mortgage rates remained high, keeping builders hesitant to invest in new projects.

The demand for existing homes also weakened, with contracts for existing-home purchases falling 2.3% from June to their lowest level since January. High borrowing costs and a shortage of homes for sale added to the affordability and sales issues in the residential property market. The mortgage rates for a 30-year fixed-rate loan hit a high of 6.77%, remaining near its highest level in over a year.

While housing struggled, manufacturing continued to benefit from AI investment, pushing factory output to its highest level in over four years. Federal Reserve's manufacturing output index rose 0.2% in July, reaching its highest level since April 2022. The AI-linked industries, particularly durable goods manufacturing and information-processing equipment, saw significant growth, including a 2.4% increase in semiconductor production and a 1.8% rise in computer and peripheral technology equipment.

The gains could potentially expand beyond high-tech manufacturing, impacting other investment goods.