Fed's Beige Book: AI data center investment driving US manufacturing, construction

Investment in AI data centers is driving growth in US manufacturing and construction, according to a new Federal Reserve assessment.

The Federal Reserve released its July Beige Book on Wednesday, saying manufacturing output expanded modestly across most districts "on the back of increased orders related to data centers, machinery and defense."

The Fed also said construction and real estate activity rose slightly overall, adding that "data center construction growth was particularly notable in some districts."

Hyperscalers — operators of massive data center campuses — including Microsoft, Google, Amazon and Meta have been aggressively expanding their AI infrastructure investment, making data center construction an engine of growth for manufacturing and construction activity across the United States.

The Fed said economic activity increased slightly or moderately in 11 of the 12 Federal Reserve districts surveyed, while one district reported flat conditions.

However, rising oil prices stemming from the US-Iran war were identified as a drag on consumer spending.

The Fed said consumer spending rose only slightly as higher fuel costs squeezed spending in other areas. Multiple districts reported households cutting back on discretionary purchases or trading down to cheaper products.

The Beige Book is a report on regional economic conditions compiled by the 12 Federal Reserve Banks through contacts with banks, businesses and experts in their respective districts. It is typically released two weeks before each Federal Open Market Committee meeting, where monetary policy decisions are made.

This edition reflects survey data on US economic conditions collected district by district from late May through June, ahead of the FOMC meeting scheduled for July 28-29.