Goldman economists on the Gen Z hiring nightmare: ‘jobless growth’ is probably the new normal

Goldman Sachs economists forecast a "new normal" of "jobless growth" in the U.S., where robust GDP expansion is increasingly driven by AI-fueled productivity gains rather than significant job creation. They highlight that net hiring outside healthcare has recently turned negative, as companies utilize AI to streamline operations and cut labor costs, a trend corroborated by Federal Reserve officials. This shift implies potential pressure on central banks to maintain lower interest rates due to subdued job growth, while asset prices might be supported by healthy output and low rates, contingent on contained unemployment and the emergence of new job categories. The report cautions that the full labor market impact of AI, including fewer opportunities for job seekers and slower economic rebounds, may become most pronounced during future recessions.

Analysis

Goldman Sachs economists Mericle and Mei project a "new normal" of "jobless growth" in the U.S., where robust GDP expansion is increasingly driven by AI-fueled productivity gains rather than significant job creation. This trend, consistent with Federal Reserve Chair Powell's "low-hire, low-fire" description, reflects demographic constraints and a decoupling of economic output from traditional employment growth.

Current labor market data shows net hiring outside healthcare has turned negative, as companies actively leverage AI to streamline operations and reduce labor costs. This focus is evident in executive earnings call discussions and corroborated by Federal Reserve Governor Chris Waller, who noted probable negative job growth in recent months, suggesting a potential shortfall in the central bank's employment mandate.

This shift could compel central banks to maintain lower interest rates due to subdued job creation, potentially supporting asset prices through healthy output. However, this hinges on contained unemployment and the emergence of new job categories to offset AI-driven losses. The full consequences of AI, including significant "transitional friction" and slower economic rebounds, are expected to become most apparent during future recessions.

Key Decisions for Investors

• Investors should closely monitor corporate earnings calls for management commentary on AI adoption and its direct impact on labor force planning and cost structures.
• Consider the potential for prolonged lower interest rates from central banks, which could support asset valuations but also signal underlying labor market weakness.
• Evaluate sector-specific exposure, favoring industries less susceptible to AI-driven labor displacement or those positioned to benefit from enhanced productivity, while exercising caution in sectors showing negative net job creation.
• Factor in increased economic sensitivity during future recessions, as these periods are likely to accelerate AI-driven workforce restructuring and could lead to slower employment rebounds.