Consumer spending is soldiering on. Business investment continues to grow. And the economy’s 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.
The 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,” Alicia Sasser Modestino, an associate professor at Northeastern University and former senior economist at the Federal Reserve Bank of Boston, told Yahoo Finance.
“Most of the time,” she said, “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 drop in the gross domestic product (GDP) bucket, continues to grow, 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,” Bernard Yaros, lead US Economist at Oxford Economics, told Yahoo Finance.
He recently found that AI spending boosted GDP by 0.4 percentage points last year as cash poured into information processing equipment, research and development, data center construction, and more — a trend expected to continue in 2026. AI-based market swings may have also helped lift consumer spending, which Yaros said rises by an estimated $0.05 for every $1 increase in stock wealth.
That 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,” Yaros said.
Read more: How AI and unemployment could shape your investments next year
Before Friday’s GDP data showed the economy grew just 2.2% in 2025, compared to the 2.8% growth of 2024, the term “jobless expansion” was bubbling to the surface — a situation where the economy grows but jobs don’t.