The US industrial economy is growing, but the benefits are far from evenly distributed. While overall industrial production is increasing at a modest 1.3% annual rate, high-tech markets are expanding much faster. In ITR Economics’ October Insider webinar, economist Lauren Saidel-Baker described this divergence as a “tale of two cities.” The AI and data-center build-out presents meaningful opportunities, but businesses must distinguish direct demand gains from the cost pressures spreading across the wider economy.
Industrial production excluding high-tech has been largely flat over an extended period, while semiconductor and electronics activity has surged. Electronics production is growing at a 12.9% rate, supported by demand for chips and processing capacity. US semiconductor production is expected to accelerate further as facilities developed during the CHIPS Act investment cycle come online.
Capital expenditure is also increasing, although higher prices account for some of the spending growth. ITR Economics expects a modest investment lull in 2027, with annual spending nevertheless remaining above current levels. Leaders should separate real demand growth from inflation-driven spending and recognize that a fast-growing market is not necessarily the largest market by total dollars.
Data-center construction totaled $63 billion over the prior 12 months, an increase of approximately 38.5% year-over-year. ITR Economics expects another phase of accelerating growth within roughly four quarters, with positive market conditions extending into late 2028 and early 2029. However, projects are concentrated in certain regions, and permitting, community acceptance, labor availability, and construction capacity can limit expansion.
Demand is reaching well beyond data-center developers. Power-generation equipment, turbines, engines, refrigeration, and specialized HVAC systems are benefiting from new infrastructure needs. Yet companies outside these supply chains can still encounter higher equipment prices and tighter competition for construction workers. Rising electricity demand and cooling-related water requirements add further pressure, making energy assumptions and procurement budgets increasingly important.
AI adoption has room to expand. Adoption is near 50% in leading sectors such as finance, insurance, and information services, compared to just over 20% in manufacturing. Still, the evidence that AI has produced a durable economy-wide productivity shift remains preliminary. Technology investment should address a defined operational need rather than simply following market enthusiasm.
“We really need to be intentional about what problems need solutions and how AI can in fact create those solutions.” For businesses assessing the next phase of investment, four questions are especially important:
The outlook remains constructive, but not without risk. High-tech demand may stay strong even as elevated prices prompt some buyers to defer equipment purchases in 2027. Organizations that assess their specific market exposure, manage cost pressures, and require evidence of investment returns will be better positioned to capture the opportunities of the AI build-out without assuming that every business will benefit equally.
At ITR Economics, we combine economic forecasting, industry intelligence, and customized analysis to help businesses navigate shifting market dynamics, anticipate cost pressures, and identify opportunities for growth. Contact us today to speak with a trusted advisor and gain the insights needed to make confident investment decisions in an evolving high-tech economy.