The US economy has proven more resilient than many feared, but one Wall Street veteran says that a recession is only being held back by tech.
Jim Paulsen, a markets strategist with more than 40 years of experience on Wall Street, argued that most of the economy is already in a recession. Tech spending has an outsized influence on economic growth, bolstering the data while the "old" economy struggles.
"Technology may be the tail wagging the dog, but the rest is a recession by any other name," Paulsen wrote in a Thursday Substack post.
The 'old era economy' is in a recession
Real private GDP rose 2.3% in 2025, Paulsen said, but nearly all of this economic growth is tied to what he calls "new era" growth.
"Excluding new era investment, the other 89% of real private spending rose by only 1% with no job creation," the strategist wrote.
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Real GDP is generally considered to be a good measure of economic growth, but in recent years, the metric has seen several distortions from factors like government spending, tax changes, and tariff-fueled supply and demand volatility. Focusing on private real GDP strips out some of these distortions.
"Do we really need to continue focusing mostly on inflation when 89% of the private economy is in a recession and the 11% which is booming — new era pursuits — are by their very nature 'disinflationary'?"
The 'new era' economy is booming, lifting GDP
The strategist focused on business spending on information processing equipment and intellectual property, using it as a measure of "new era" spending. This would include big tech's mega spending on AI.
Paulsen found that the new era subsection has grown nearly 2.5 times as fast as traditional private-sector spending. This gap has only widened in more recent years.
New era investment spending weight on real private GDP has grown since 1965
New-era private spending grew 14% in 2025, compared to 1% growth in private spending, excluding the tech-focused subset.
"Overall, new era pursuits have grown rapidly and their influence on the overall U.S. economy has become outsized relative to old era activities," Paulsen wrote.
New era and old economy gap mirrors Mag 7 and the other 493
Paulsen compared the widening gap to the stock market narrative of the Magnificent Seven vs. the other 493 stocks in the S&P 500.
The stock market lately has seen gains broaden, with AI disruption fears and the war in Iran supporting a broader rotation out of former tech leaders.
The dynamic between the new era economy vs. everything else shows deeper bifurcation.
"When the President, the Federal Reserve Chairman, economists, financial pundits, and journalists imply overall real GDP growth currently remains okay, it misses the fact that, similar to the stock market, although the aggregate growth number appears satisfactory, the great bulk of the economy — 89% -- is NOT doing okay!"
This dynamic could explain the mixed sentiment among economists as well as the discrepancy between the American public's negative view of the economy and what economic data signals.
