Profits Soar, Jobs Vanish: How AI Created A Tale Of Two Economies
News Summary
The current job market exhibits a unique phenomenon: corporate profits and tech company earnings are soaring, yet tens of thousands of high-skilled jobs are silently disappearing, primarily driven by artificial intelligence rather than slowing revenue. Companies like Amazon, Meta, and Salesforce have announced significant layoffs, explicitly citing AI as the main reason. Since OpenAI launched ChatGPT in November 2022, the historical relationship between the S&P 500 and private-sector job openings has broken down. Job openings have fallen sharply, while the stock market has climbed to record highs, fueled by robust earnings growth and rising productivity, underscoring a “Wall Street versus Main Street” divide. Chen Zhao, chief global strategist at Alpine Macro, notes that the decoupling of profits from payrolls has become an economy-wide phenomenon. U.S. labor productivity has accelerated since 2020, partly because machines and algorithms are taking on more cognitive and repetitive workloads. A shrinking workforce, due to baby boomer retirements and the Trump administration's deportation campaigns, has also led to a decline in labor force participation, resulting in the unemployment rate only ticking up slightly to 4.3% despite weak job creation. While rising productivity is disinflationary and could push core inflation below the Fed's target, Zhao anticipates the Federal Reserve will remain cautious on rate cuts. In the near term, a “jobless expansion” with strong output and weak hiring could delay Fed easing, but in the long run, if inflation falls below target and job growth remains sluggish, the Fed might be forced into more aggressive easing.
Background
In 2025, the global economy is undergoing a transformative period shaped by the rapid advancement of artificial intelligence. OpenAI's release of ChatGPT in November 2022 is widely considered a catalyst for this change, initiating an accelerated wave of AI adoption across various industries. Since the COVID-19 pandemic, the U.S. labor market has experienced significant structural shifts. The labor force participation rate has not fully recovered and has further declined since early 2024. Mass retirements among baby boomers, coupled with the Trump administration's escalated deportation campaign of 3,000 undocumented immigrants per day following his re-election in November 2024, have further tightened labor supply. These factors collectively contribute to the current phenomenon of “jobless growth,” where corporate profits are decoupling from employment growth amidst economic expansion.
In-Depth AI Insights
What are the core drivers of the current "jobless growth" model, and what does it signify for the long-term economic structure? - The core driver is the convergence of AI-driven productivity gains and a structural contraction in labor supply. AI allows companies to achieve higher output and profits with fewer employees, while demographic shifts and tighter immigration policies limit labor pool expansion. This indicates that economic growth no longer inherently guarantees large-scale job creation. - In the long term, this suggests an intensifying divergence in the job market. Highly skilled workers capable of leveraging AI will benefit, while those in repetitive, cognitive roles face ongoing automation displacement risks. This could exacerbate wealth inequality and challenge traditional macroeconomic policy frameworks. How will the Federal Reserve's policy transmission mechanism and market expectations evolve as it navigates "jobless growth" and inflationary pressures? - The Fed's challenge lies in managing a scenario where productivity gains provide disinflationary pressure, yet core inflation may remain elevated due to other factors (e.g., sticky rents). This "jobless expansion" allows the Fed to justify delaying rate cuts even with a softening labor market, mitigating risks of inflation resurgence. - Market expectations for Fed rate cuts may be overly optimistic, as the Fed will prioritize its inflation mandate over job growth. However, if long-term inflation falls below target and job growth remains sluggish, the Fed will eventually be compelled to adopt more aggressive easing, potentially leading to a repricing of risk assets later on. How should investors adjust their strategies to navigate the AI-driven "tale of two economies" landscape? - Investors should focus on the "winners" in the AI technology stack, including AI infrastructure providers (chips, cloud computing), AI software and application developers, and traditional industry leaders effectively leveraging AI for efficiency and profit growth. These companies are poised for sustained earnings growth even amid a weaker overall job market. - Simultaneously, caution is warranted for sectors and companies vulnerable to AI automation, particularly those with high proportions of labor-intensive or repetitive tasks. Furthermore, considering potential socio-economic structural shifts, a prudent approach includes defensive assets like high-quality bonds and areas that may benefit from new government policies responding to labor market changes.