So Where Are The New Jobs?

By many measures, the U.S. economy is doing well, with the gross domestic product growing steadily and stock indexes routinely hitting record highs. But one thing is missing from the economic expansion: the jobs.

Forecasters expect that the economy grew at a healthy 2.5% inflation-adjusted annual rate in the fourth quarter despite being dragged down by a lengthy government shutdown. Typically, economic expansion creates demand for many new positions, but that didn’t happen in 2025, which was the worst year for job creation outside a recession in more than two decades.

The economy is growing as companies build data centers at a breakneck pace and pour billions into an AI arms race. Optimists about the new technology have compared the frenzy to the railroad boom of the industrial age or the telecommunications explosion in the late 20th century. However, the modern-day equivalents of railroad workers or information sector jobs are nowhere to be seen in employment statistics.

“If you’re grading the economy based on real GDP, it looks pretty good; if grading based on jobs, not so much,” Brian Wesbury, chief economist at First Trust, noted in a commentary.

“Over the past year, the economy has been characterized by a breakdown in a typically strong economic relationship,” said Matthew Luzzetti, chief economist at Deutsche Bank. “During the pre-Covid period, changes in the hiring rate were significantly positively correlated with growth in economic activity.”

Not anymore. Not only was job growth slow last year, but it was heavily concentrated in the health care sector, which is relatively immune to the ups and downs of the business cycle.

Is A Health Care-Powered Job Market Sustainable?

“Excluding health care, job growth in recent years has essentially been flat,” Matt Colyar, an economist at Moody’s Analytics, said in a commentary.

“As the rest of the economy has slowed, health care has provided a lifeline. However, health care is hardly a dynamic industry; productivity growth is slow, and critiques that it has become bloated are well-founded,” Colyar wrote. “In 1990, there were 28 people in the U.S. for every health care worker. By early 2025, that number had fallen to nearly 14.”

Outside of health care, employers have mostly avoided mass layoffs, but it’s difficult for those outside the workforce to find a job. Job openings plunged in December, and among the unemployed, 25% were out of work for six months or more in January. Historically, that level of long-term unemployment only happened in the wake of recessions.

“We see little reason to think job creation at newly formed businesses is running at very high levels,” Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, wrote in a commentary.

With so little help wanted by businesses, it’s no wonder that consumers are telling pollsters they’re growing more pessimistic about the job market even as overall unemployment remains historically low. For example, the percentage of people who said jobs are hard to get rose to a post-pandemic high of 21% in January’s Consumer Confidence survey from the Conference Board.

Why Jobs Are Scarce

Economists have several explanations for the phenomenon.

One possible reason for the job slump is the tariffs that President Donald Trump imposed over the last year, which made employers uncertain about trade policy and caused businesses to delay expansion and hiring plans.

Another is the crackdown on immigration, which has reduced population growth and therefore both the demand for jobs and the pool of available workers.

A third hypothesis is that the work is going to the same place as the investment dollars: AI. There’s some evidence that companies are using AI software to automate some of the work they otherwise would have hired early-career workers to do. Entry-level workers in AI-exposed industries were 16% more likely to be unemployed than their counterparts in other fields, a Stanford study published in November found.

That could be why the unemployment rate for recent college graduates ticked up to 5.6% in December, higher than the overall unemployment rate of 4.2% that month. Usually, recent college grads are less likely to be unemployed than the general population.

“Junior positions often involve tasks that can be automated, and the time it takes a new employee to get up and running is costly,” Moody’s economists Colyar and Elise Burton wrote in a commentary. “In a tight labor market, firms are willing to make those investments because they need to fill open positions. In a frozen labor market where firms are neither hiring nor letting anyone go, they may be more likely to test-run AI adoption as a substitute for these positions.” 

If this is the beginning of a trend, it threatens the broader economy. A wave of AI-related job losses is one of the risks Moody’s identified as a possible cause of the next recession.

“In the labor market, mass adoption of artificial intelligence could dramatically shrink firms’ staffing needs,” Moody’s economists wrote. “As the economy recalibrates, unemployment and societal tension would run worryingly high.”