The current state of the U.S. economy resembles a modern-day "Dr. Jekyll and Mr. Hyde" scenario. On one hand, the stock market is soaring to unprecedented heights, and economic growth has surpassed 4 percent, painting a picture of prosperity. However, this seemingly positive situation has a grim counterpart: hiring has stalled, leaving many Americans feeling stagnant and anxious.
This phenomenon is known as a "jobless boom." It’s a unique situation that benefits Wall Street but poses challenges for Main Street. The economy is expanding rapidly, primarily due to the AI revolution and increased spending by affluent Americans, leading to what some call a "K-shaped economy" where the top 20 percent flourish while the bottom 80 percent struggle to keep up. Traditionally, robust economic growth results in significant job creation, but this hasn't been the case recently. Last year marked the worst period for job gains outside of a recession since 2003, following the dot-com crash when the economy experienced a "jobless recovery."
The U.S. would have seen job losses in 2025 if not for employment gains in healthcare and social assistance. Most blue-collar and white-collar sectors experienced job cuts last year. Nearly 85 percent of the job growth occurred by April, coinciding with President Donald Trump's announcement of sweeping new tariffs that disrupted supply chains and increased consumer prices. Hiring slowed significantly for the remainder of the year, despite fading fears of an economic downturn and growing investor confidence in sustained growth.
Recent data indicate a weak labor market. Unemployment has hovered around 4.4 percent since September, and while layoffs haven't increased, hiring remains sluggish.
Understanding the jobless boom requires examining three key factors: a correction from previous overhiring, significant policy changes by the Trump administration, and the rise of AI.
The end of the post-pandemic hiring spree
The post-pandemic period saw a hiring frenzy as companies rushed to secure talent amid a rebounding economy and unprecedented job-switching rates. Now, business leaders are focusing on "right-sizing" their workforce. Many executives cite this as the primary reason for the hiring slowdown. Data supports this view: the U.S. recovered all pandemic-related job losses by June 2022, with strong hiring continuing through 2023. However, the monthly job gain average dropped from 331,000 in the latter half of 2022 to just 49,000 in 2025, nearly offsetting the gains from the boom years.White House policy shifts
2025 saw dramatic policy changes under the Trump administration, including the highest tariffs since the 1930s, tightened immigration controls, and a mass deportation program. Brookings Institution research found that net migration turned negative for the first time in 50 years. Efforts to reduce government agencies led to a 277,000-person reduction in the federal workforce since January 2025.
Hiring came to a virtual standstill after April, except in healthcare. Companies reacted to the uncertainty by freezing hiring, with smaller firms laying off workers. Manufacturing, particularly affected by tariffs, lost 72,000 jobs since April. The immigration crackdown reduced the available workforce, with some economists estimating that as few as 30,000 new jobs per month might be needed to maintain the current unemployment rate due to the shrinking labor pool.
- The impact of artificial intelligence
While there's little evidence that AI is currently replacing jobs, its influence on corporate spending is significant. Firms allocated substantial funds to AI and robotics in 2025, leaving less budget for hiring. A notable trend is the declining share of the economic "pie" going to worker wages, with 2025 seeing a record low in national GDP allocated to workers. Business leaders are prioritizing capital investments, a trend intensified by the AI revolution.
While all these factors contributed to the hiring recession in 2025, policy changes likely had the most significant impact, followed by corporate "right-sizing." Diane Swonk, chief economist at KPMG, who first termed this a "jobless boom," believes AI is not yet the primary driver of labor market weakness, though this remains a subject of debate.
The jobless boom is expected to persist into 2026, with strong growth driven by affluent spending, ongoing AI development, lower interest rates, regulatory rollbacks, and tax reductions from recent legislation. However, the benefits of this growth may not translate into job creation anytime soon.
Looking ahead, there's hope that firms have completed their workforce adjustments and that hiring could rebound, especially if economic growth continues and policy uncertainty decreases. Wage growth has remained robust at 3.8 percent over the past year, outpacing inflation at 2.7 percent. If the labor market revives, wages could stay high, providing financial relief to more Americans.
However, January has already shown that White House policy uncertainty remains a concern, as evidenced by market reactions to Trump's threats of tariffs on Europe. There are also doubts about the sustainability of spending by the wealthy and corporations if the stock market corrects. Many CEOs continue to be rewarded for cost-cutting and layoffs, suggesting it may take time for firms to feel confident enough to expand their workforce.
This situation is troubling for Americans anxious about the jobless boom and poses a challenge for Republicans aiming to improve economic perceptions before the midterm elections.