Consumer spending is soldiering on. Business investment continues to grow. And the economy is expanding, albeit at a slower pace. So where are the jobs?
The US saw almost no payroll growth last year, notching a paltry 181,000 positions, with more unemployed people than there were job openings. This mismatch may have something to do with artificial intelligence. Companies are dropping tons of money on AI while pulling back on hiring.
“We’re making a big bet right now in terms of where AI is going, which is not the sturdiest thing to build your economy on,” noted one economist from Northeastern University. “Most of the time, the labor market is the engine of economic growth and can provide people with jobs and growing wages that create a virtuous cycle of consumption.” But only parts of that cycle are in evidence right now.
The overall unemployment rate, at 4.3%, remains near historically low levels, but job postings for December were at their smallest amount since 2020. Meanwhile, consumer spending, which is the biggest component of the gross domestic product (GDP), continues to grow. This is powered somewhat by higher-income households benefiting from AI-fueled stock market gains.
“We’ve seen some very serious and big gains in wealth and household wealth—not just in housing, but especially in stock market wealth—and that contributed very seriously to consumption growth last year,” said a lead economist from Oxford Economics. Their research found that AI spending boosted GDP by 0.4 percentage points last year as cash poured into information processing equipment, research and development, and data center construction—a trend expected to continue.
This spending growth occurred “even though it was a very unfavorable backdrop: we weren’t adding as many paychecks, inflation was still stubbornly high, you had consumer sentiment really down in the dumps,” the economist added.
Before recent data showed the economy grew just 2.2% in 2025, compared to 2.8% growth the prior year, the term “jobless expansion” was bubbling to the surface. Could the promise of AI further supercharge economic growth but sap the immediate need for more workers?
Like many narratives about the economy, the explanation is hardly simple. AI is one factor, but a broad immigration crackdown has also trimmed the country’s population of available workers. Employment growth generally tracks closely with immigrant worker flows. Net immigration is expected to be significantly lower this year compared to normal years. Because of that, “simply speaking, we can’t add as many jobs, as has been the case in prior years.”
Older Americans are also aging out of the workforce, and some companies are slashing headcount after massive post-pandemic hiring sprees left them with more workers than they needed. Other businesses face uncertainty related more to tariffs than AI. “There’s so much going on right now, and each of them feeds into the other,” observed one economic policy expert from Yale.
In a recent speech, a Federal Reserve governor noted that extremely rapid AI adoption could one day usher in a “jobless boom.” In a more gradual adoption scenario, some occupations would be displaced while new ones emerge, avoiding widespread joblessness. “As with other general-purpose technologies, the long-run effects of AI are likely to be profoundly positive,” the official said. “But in the short term, AI may deeply disrupt labor markets and harm some workers.”
