Economic Perspectives - 12/27/24

This week's Economic Perspectives will be a short one to close out the year. Since Artificial Intelligence (AI) has been the hot topic of discussion over the past two years, the Census Bureau included questions asking whether businesses are currently using AI and whether they plan to use it over the next six months as part of its Business Trends and Outlook Survey (BTOS). This week's Perspectives section examines the results.

Business owners are saying that, although AI may hold great potential, they are not using it yet and don't plan to use it over the next six months. Before you say that business owners are dinosaurs and behind the times, recognize that successful business owners recognize that there is a difference between being on the “leading edge” of a new development and being on the “bleeding edge." Just because the majority of business owners may not currently be using AI and are not planning to use it over the next six months does not mean that they are not actively studying it.

• The overwhelming majority of business owners responded that they do not use AI in producing their goods and services.

  • The percentage has shrunk from 89.4% as of 9/10/23 to 87.7% as of 12/1/24.

  • The percentage of respondents who said “yes,” has risen from 3.7% as of 9/10/23 to 6.1% as of 12/1/24.
    

• While the response is still overwhelmingly “no,” it is a smaller majority of “no” responses when it comes to the outlook six months from now.

  • As of 9/10/23, 74.1% of business owners responded that they do not plan to use AI during the next six months. The “no” response rate fell to 68.3% as of 12/1/24.

• The decline in the “no” response rate was not solely due to more owner responding “yes” as there was a bigger percentage point increase in those who responded “do not know” compared to those who responded “yes.”

  • The percentage of business owners who responded that they did not know if they would be using AI during the next six months rose 3.3 percentage points from 19.6% as of 9/10/23 to 22.9% as of 12/1/24.

  • The percentage who responded “yes” rose 2.8 percentage points from 6.3% as of 9/10/23 to 8.8% as of 12/1/24.

• There might be an initial reaction to think that the sample size of the survey does not represent most businesses.
  • The reality is that the sample size of this survey is 1.2 million businesses so, the sample size is not small.

• The second reaction might be that business owners are dinosaurs and not keeping up with changing times.

  • Given the ongoing challenge of finding qualified help, rising employee costs (wages and benefits) and continued high raw material costs, I doubt that business owners are ignoring developments that might allow them to be more productive.

• I will suggest the theory that successful business owners know the difference between being on the “leading edge” of a new development versus being on the “bleeding edge” and are proceeding with caution when it comes to using AI.

  • An example of being on the “bleeding edge” is those businesses who jumped onboard the “dot.com” craze of the late 1990's and invested in “dot.com” companies that touted how they would revolutionize businesses but, had not yet proven their business model would succeed. Sadly, many businesses who invested early then watched the promise fade as the string of “dot.com” companies failed and triggered the “tech crash” of the early 2000's.

    • The internet and technology clearly recovered from that crash and have become a dominant force today. Unfortunately, for those who jumped in at the “bleeding edge”, they may have not survived to enjoy the long-term benefits of the internet and technology. 

    • Those who waited for the early-stage problems (i.e. bleeding edge) of the internet and “dot.com” companies to be resolved were still able to be near the leading edge of advances in productivity.

  • Perhaps the message from business owners right now is that they believe that AI is still at the “bleeding edge” stage of its development.

• The reality is that, just because a business is not using AI to produce its goods and services, does not mean that AI is not a part of doing business.

  • Software that businesses use may have AI imbedded within the software without business owners realizing it.

    • A real-life example of this is when I make an online reservation (i.e. restaurant, hotel, airfare) and provide an email to receive the confirmation, Google or Microsoft Edge monitors the emails and automatically puts those reservations on my calendar. I am not actively using AI to do that but, by using the internet to make my reservations it is occurring for me.

• Remember, just because the majority of business owners do not currently use AI to produce their goods and services does not mean that they are not actively studying it and planning for it.

There is no economic data being provided this week in order to keep this newsletter short.

Merry Christmas and Happy Holidays!