A Dr. Jekyll and Mr. Hyde story is playing out in the US economy right now. The stock market is at record levels, and the latest economic growth reading is above 4 percent, a boom-like scenario. But this positive tale has a dark side: there is virtually no hiring, and that has left many Americans feeling stuck and anxious.
This is a jobless boom. It’s an unusual situation that is ideal for Wall Street, but tough for many on Main Street. The economy is growing at a rapid rate, due largely to the AI boom and spending by wealthy Americans (what I dubbed the return of the “K-shaped economy” where the top 20 percent are thriving and the bottom 80 percent are just getting by). Normally, a strong year of economic growth leads to ample hiring, but that isn’t happening. Last year was the worst year for job gains outside of a recession since 2003 — when the economy was in a “jobless recovery” after the dot-com bubble burst.
The United States would have lost jobs in 2025 if it weren’t for health care and social assistance hiring. Most blue-collar and white-collar industries shed jobs last year. Nearly 85 percent of the job gains that did occur happened by April, when President Donald Trump announced sweeping new tariffs that disrupted supply chains for many businesses and raised prices on consumer goods. There was little hiring the rest of the year, even as early fears of a downturn faded and investors became more confident growth would continue.
The latest data shows a labor market that is weak. Unemployment has basically been at 4.4 percent since September, and layoffs aren’t picking up. But hiring remains puny.
It’s critical to understand why the jobless boom is happening. There are three key factors at play: First, a correction from the overhiring in 2022 and 2023. Second, Trump’s dramatic policy changes on tariffs and immigration. And third, AI.
1) The post-pandemic jobs boom is over
There was a post-pandemic hiring frenzy. Firms were trying to grab as much talent as possible in 2021, 2022, and 2023 as the economy rebounded and workers were job switching at historic rates to take advantage of a bidding war for their services. Now, business leaders are pruning. In corporate speak, they are “right-sizing” their headcount.
Many business leaders privately tell me they think this is the largest factor driving the lack of hiring. Data backs up this argument. The United States recovered all jobs lost during the pandemic by June 2022. But hiring remained strong for the rest of 2022 and even 2023. The typical monthly average for job gains in 2015 through 2019 was about 190,000 a month. The monthly average in the second half of 2022 was a whopping 331,000, and it was 216,000 in 2023. Then the situation changed: The monthly average was 168,000 in 2024 and a mere 49,000 in 2025. To put it another way, those hiring boom years are almost entirely offset by the weaker past two years, as the table below illustrates.
To put it mildly, there were dramatic shifts in policy in 2025. President Trump put in place the highest tariffs since the 1930s. He also curbed immigration and put in place a mass deportation program. The overall impact is that net migration was negative in 2025 for the first time in half a century, Brookings Institution research finds. DOGE and related efforts to scale back various agencies contributed to a 277,000-person reduction to the federal workforce since January 2025.
It’s telling that hiring basically stops after April (with the exception of health care, which is always hiring, given America’s aging population). Firms reacted to all the uncertainty by halting hiring, and smaller firms appear to have gone a step further and done some layoffs. Manufacturing, an industry especially hard-hit by tariffs, shed 72,000 jobs since April.
Due to the administration’s crackdown on immigration, there are fewer workers available to hire. Some economists estimate that as few as 30,000 new jobs per month might be needed to keep the unemployment rate steady since the labor pool has dwindled so much.
3) Artificial intelligence
There’s little evidence that AI is replacing jobs yet. Researchers from Stanford University and Yale Budget Lab are tracking the impacts of AI closely on the labor force, and both see almost no impact so far.
That said, it’s important to step back and look at this from a CEO’s perspective. AI may not have directly replaced jobs in 2025, but each firm has a limited supply of money to spend each year on new investments in technology and labor. In 2025, firms spent a lot of money on AI and robots. That meant there was less to spend on hiring more workers.
One of the best charts that tells the story of the American economy in the 21st century is this one: How much of the economic “pie” goes to worker wages? The latest data show that 2025 hit a record low in national GDP going to workers. In other words, business leaders are prioritizing capital investments (and reaping big rewards for doing so). This is an ongoing trend, but it’s getting even more pronounced in the AI age.
Not all of these factors impacted the economy equally, of course. Personally, I would argue that policy was the biggest driver of the hiring recession in 2025, followed by firms’ “right-sizing” hiring. As Diane Swonk, the chief economist at accounting firm KPMG, who was the first to call this a “jobless boom” in October, put it, AI was “not the primary driver of the weakness in the labor market to date.” So far, its effects have mostly been felt among recent college graduates. But this debate will continue, and smart people can disagree about how to weigh these factors.
The jobless boom is likely to continue in 2026. The pieces are in place for a hot growth year. Not only is spending by the rich strong and the AI buildout ongoing, but on top of that, lower interest rates, a regulatory rollback, and reduced taxes from the One Big Beautiful Bill enacted last year all give extra fuel to growth in the short run. The costs of all this stimulus will come later. Still, even with this hot growth, hiring could remain anemic for a while.
Looking ahead to the rest of the year, the optimistic case is that firms are mostly done right-sizing. Hiring could pick up again, especially if growth stays hot and policy uncertainty ratchets down a bit. Wage growth has remained surprisingly high at 3.8 percent in the past year (versus 2.7 percent inflation). If the labor market jumpstarts again, wages would likely remain elevated and more Americans could begin to feel some financial gain.
But January alone has already illustrated that White House policy uncertainty remains high — stock and bond markets briefly buckled as Trump threatened Europe with tariffs, or worse, over Greenland — and there are worries about how robust spending by the rich and corporations would be if the stock market experiences a sell-off as investors re-price their AI bets. Many CEOs are also being rewarded by shareholders for cutting costs and shedding workers. It will probably take a while for firms to feel confident enough to expand headcount.
That’s bad news for Americans feeling uneasy in the jobless boom — and it could mean trouble for Republicans looking to turn around economic perceptions before the midterm elections.
