Leading analyst cautions economy is learning to expand without generating employment, creating a significant weakness
Last summer, research forecast a “” in the economy as firms increasingly demonstrated an ability to boost output with fewer employees, prioritizing efficiency over headcount. Half a year on, analysts anticipate another year of expansion—in gross domestic product, but not in employment. This aligns with a separate Goldman Sachs projection that “” could define the new normal for this decade.
In a Wednesday note, Oxford Economics’ chief U.S. economist Michael Pearce stated that GDP is poised to grow by 2.8%, an acceleration from prior 2025 forecasts, driven increasingly by gains in productivity.
This comes as the workforce is expected to remain largely stagnant in the near future, due to an aging native-born population and President Donald Trump’s immigration restrictions reducing net annual inflows to around 160,000—a sharp drop from over 3 million just years earlier. This view is consistent with an August projection from JPMorgan Asset Management strategist David Kelly, who said it was quite possible to see “” over the next five years.
With labor force growth stalling, Pearce explained that economic expansion will depend more heavily on rising productivity, which is progressing due to cyclical economic strength and a vibrant business climate, alongside maturing investments in research and development. Artificial intelligence is expected to contribute more significantly to productivity gains later in the decade.
“That would put the break-even rate of payroll growth, or the number of jobs the economy needs to create to keep the unemployment rate stable, close to zero,” he added.
Pearce observed that the labor force participation rate for the native-born population continues a long-term decline, despite a recent minor increase. While labor supply stays weak, demand is also being subdued by high policy uncertainty and previous over-hiring, with the adoption of AI also set to dampen payroll growth.
Oxford Economics projects average monthly job gains will fall below 40,000 in 2026, a level still sufficient to maintain a stable unemployment rate. This tepid growth would signify another year of a “low-hire, low-fire” labor market trend. Following recent adjustments, the Labor Department revised down its 2025 job growth figure to just 181,000, from an initial estimate of 584,000 and far below 2024’s increase of 1.46 million.
On average, last year saw only 15,000 jobs added per month, yet the unemployment rate concluded 2025 at 4.4%, marginally higher than the 4% rate at the year’s start.
“Productivity is the ultimate source of sustainable improvements in real wages, but it may put downward pressure on jobs growth in the near term as firms can do more with fewer workers,” Pearce said.
The chief economist at the Burning Glass Institute has assessed that white-collar roles, specifically, are declining in number while becoming more productive, with employment levels hitting a peak in November 2022—the same month ChatGPT launched.
Examining sectors like finance, insurance, information, and professional services, he identified a distinct shift from historical trends after 2022: employment reached a high and then gradually decreased, while real GDP kept climbing and even sped up at times.
“AI-enabled automation is therefore a plausible contributor, even if the data cannot isolate its specific role,” he wrote.
Pearce also compared the current situation to the jobless recovery of the early 2000s, when the economy was also rebounding from a phase of excessive hiring as technological progress fueled a productivity boom.
He noted that today, AI’s potential to save on labor could also increase corporate profits’ share of the economy, while workers claim a smaller portion. However, this introduces a further risk.
“This leaves the economy vulnerable to shocks, because the labor market is the main firewall against a recession,” Pearce warned. “Spending by middle- and lower-income households relies heavily on the health of the labor market.”