The AI boom is great for stocks, not so much for jobs

Soaring investment in artificial intelligence, and the infrastructure that makes it possible, is driving economic growth and a booming stock market — but not demand for human workers.The big picture: The job market is teetering despite — and perhaps in part because of — the onset of advanced AI. A core political question for the coming years will be what, if anything, government ought to do about it.The unemployment rate is low for now, but job creation has ground to a near-halt — and there are deep divides over whether that calls for a policy response out of Washington.The Trump administration is bullish on the potential for AI to drive a surge in overall growth and make the nation richer, while Democrats are more vocally fretting about the possibility of job losses.What they're saying: "The notion that the government necessarily has to hold the hands of every single person getting displaced… underestimates the resourcefulness of people," White House adviser Jacob Helberg said at the Axios AI+ DC Summit last week."The top-down approach, where we assume that the government has to have the answer to everything, actually underestimates the incredible adaptability and resourcefulness of the private sector," Helberg told Axios' Maria Curi.The other side: "There is a possibility we could have millions of people put out of work by artificial intelligence," Democratic Sen. Mark Kelly told Axios' Ina Fried.Upskilling and retraining workers is the "biggest thing" that lawmakers should work on now, he said.Zoom out: Much of the economy is treading water, barely growing but for AI-related investments. Those require compute power, high-end software engineering, and electricity — but not great masses of workers.As a result, the apparent paradox of solid topline economic growth and booming financial markets paired with a weak job market may not be much of a paradox at all."While it takes a lot of people to build a new data center, it takes relatively few to operate one," wrote Minneapolis Federal Reserve president Neel Kashkari in a new essay."Thus the labor market and the stock market could both be right: Technology is driving rapid growth of industries that don't require as much labor, resulting in a booming stock market and sluggish hiring environment," Kashkari added.By the numbers: The U.S. labor market isn't in full-on recession mode — the 4.3% unemployment rate is low by historical standards and has only ticked up slightly this year. But under the hood, warning signs abound.Employers added only 27,000 jobs a month between May and August, far below the 168,000 a month last year.Average hourly earnings are up 3.7% over the last year — but that's down from 4.2% in the 12 months ended last November.Workers see only a 45% chance of finding a new job within a year if they lose their job, the lowest on record in a New York Fed survey conducted since 2013.A survey of big-company CEOs by the Business Roundtable showed 38% plan to cut their employment over the next six months — but 89% see stable or increased capital spending in that time.State of play: Meanwhile, spending on information processing equipment and software added more to GDP growth in the first half of the year than consumer spending, as Renaissance Macro's Neil Dutta first flagged.The S&P 500 reached a new high Friday, its 27th of the year, and is up 13.6% in 2025.Between the lines: If AI investment generates the productivity gains that its enthusiasts expect, it would be expected to generate higher real incomes over time and more prosperity.But that process of reallocating labor — moving people from the jobs available now toward those needed by an AI-for-everything future — could turn out to be extraordinarily painful.See, for example, the China shock of the early 2000s that generated higher real incomes for Americans on average, but decimated many manufacturing-heavy communities.Yes, but: It's not certain how much of the job market softness is a direct consequence of AI-driven productivity gains versus general economic weakness."It may be that companies or other institutions that have been hiring younger people right out of college are able to use AI more than they had in the past," Fed chair Jerome Powell told us this week."It's also part of the story, though, that ... job creation more broadly has slowed down. The economy has slowed down."

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