U.S. businesses spend more on equipment as AI growth offsets weakness in housing

AI fuels a new spending wave

Have you noticed how artificial intelligence seems to be everywhere lately? That same tech boom is now driving a surge in business spending across the United States.

Companies are ordering more equipment, especially tools linked to AI and data centers. This rise in spending is helping keep the economy steady, even as other areas like housing struggle to regain strength.

Core orders beat expectations

New orders for core capital goods rose 0.6% in December, according to the Commerce Department. Economists had expected a smaller increase, making the gain a positive surprise.

These orders are a key sign of how much businesses are investing in equipment. When companies spend more on machinery and tools, it often points to confidence about future growth.

Shipments show solid momentum

It was not just new orders that showed improvement. Shipments of core capital goods rose 0.9% in December, following a modest increase in November.

Higher shipments indicate that businesses are not only placing orders but also receiving and actively using equipment. This sustained momentum provides a boost to economic growth as the U.S. heads into 2026.

Manufacturing output picks up

Factory production increased 0.6% in January, marking the largest gain in nearly a year. This rise indicates that manufacturers are ramping up activity following a slower stretch.

On an annual basis, factory output rose 2.4%. Investment in AI has driven growth in specific areas of manufacturing, particularly in sectors tied to technology, automation, and advanced machinery.

Data centers drive equipment demand

AI growth has fueled rapid expansion in data centers across the country. This expansion demands large amounts of equipment, including servers, networking gear, and other infrastructure, not just standard computers.

Orders for computers and electronic products climbed 3.0% in December. Demand also rose for electrical equipment, metal products, and machinery used to build and power these facilities.

Durable goods orders pull back

Overall, durable goods orders fell 1.4% in December after a strong November. The drop was mainly due to fewer aircraft orders, which can swing widely month to month.

Excluding aircraft, business spending appeared considerably stronger. Motor vehicle orders rebounded as well, rising 1.2% during the month, signaling renewed activity and confidence in certain sectors of the economy.

Tariffs still weigh on factories

Manufacturing accounts for roughly 10% of the U.S. economy. While production is showing signs of improvement, ongoing tariffs on imported goods continue to create pressure, affecting costs, supply chains, and overall competitiveness.

Higher costs for materials and parts can limit how much factories expand. Still, some economists believe tax cuts and easing interest rates could support broader investment.

Growth outlook remains steady

The economy is expected to have grown at a 3.0% annual rate in the fourth quarter. That follows an even faster pace in the previous quarter.

Strong equipment spending is seen as a key reason for this steady growth. Economists say tech investment is helping offset weaker spots in the economy.

Housing starts send mixed signals

The housing market paints a somewhat different picture. Single-family housing starts rose 4.1% in December, indicating a modest improvement in construction activity.

However, building permits for single-family homes fell 1.7%. Since permits are an indicator of future construction, the decline suggests caution among homebuilders and a more measured approach to new projects.

Costs pressure homebuilders

Builders continue to face high land prices and rising construction costs. Tariffs on materials such as lumber and cabinets have driven prices even higher, putting additional pressure on developers.

Labor shortages have also contributed to increased building expenses. Even though mortgage rates have eased somewhat, housing affordability remains a major challenge for many potential buyers.

Little-known fact: U.S. factories boosted production 2.4 percent over the last year while shedding 83,000 jobs, as automation allowed more output with fewer workers.

Multifamily building shows strength

Projects with five units or more increased sharply in December. Multifamily housing starts climbed 10.1%, while permits for this segment jumped 18.1%, reflecting robust activity in the rental market.

This surge suggests stronger demand for apartments and rental units. Developers may view multifamily housing as a safer investment, particularly as single-family home sales remain uneven and face ongoing affordability challenges.

Mortgage rates shape demand

Mortgage rates tend to follow the 10-year Treasury yield. Even small changes in rates can make a big difference in monthly payments.

Experts say a bigger drop in rates would be needed to spark a stronger housing rebound. For now, limited supply and high prices continue to hold the market back.

Curious what’s pushing travelers to look elsewhere? The details paint a bigger picture.

Business strength offsets housing drag

While housing remains on shaky ground, business investment is helping balance the picture. AI-driven spending on equipment is giving the economy an important boost.

If companies keep investing and manufacturing stays firm, growth could remain steady in 2026. The mix of tech expansion and housing challenges shows how different parts of the economy can move in opposite directions.

Ever think AI budgets could move the entire economy? The numbers tell an interesting story.

Do you think AI investment will continue to boost business despite a weak housing market? Share your opinion in the comments.

This slideshow was made with AI assistance and human editing.

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