Why I Could See Jobless Rate at 5% as AI Use Grows
But artificial intelligence's impact on employment isn't as clear cut as you might think.
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The January ADP report last Wednesday showed only 22,000 private sector jobs created last month. That was half that of expectations. Due to the recent partial government shutdown, the January BLS report was delayed to this Wednesday. The latest jobs figures are just the latest sign that the U.S. jobs markets have clearly started to falter in recent quarters.
The fourth quarter had more layoff announcements than any quarter since 2008, during the Great Financial Crisis. Layoff announcements in January came in more than double the rate of the previous January. The January numbers were also the highest level for layoffs for January since the Great Financial Crisis. AI is getting a lot of blame for the meager job growth seen across the U.S. economy. And to some extent this is true, but it is more nuanced than the headlines. AI is impacting job growth in two ways and will likely continue to do so for the rest of 2026 at the very least.
The combined planned capital expenditures in 2026 for Microsoft (MSFT) , Amazon (AMZN) , Meta Platforms (META) and Alphabet (GOOG) is more than $600 billion. The majority of this is being allocated to build out of massive data centers and associated AI infrastructure and components. This is a dramatic jump from the roughly $350 billion these four members of the Magnificent Seven spent in 2025. The additional $250 billion in spending this year is obviously going to be a key driver of GDP growth.
But burgeoning capex budgets have downsides as well. Higher capex will significantly reduce the free cash flow available for stock buybacks. This has been a key driver of EPS growth over the past 15 years. In addition, this capex will crowd out other corporate spending. In some cases, corporations will institute layoffs to be able to afford their increasing capex needs.
Oracle (ORCL) is the poster child of this emerging trend. The company’s projected cash flow is now projected to be negative for the next several years. Oracle is in the process of a huge AI buildout. A large part of this is connected to the $300 billion deal it struck with OpenAI last summer. The company is currently contemplating potential layoffs of 20,000 to 30,000 employees. This follows recent significant layoffs at names like UPS, Amazon and Home Depot (HD) . And this is as Amazon is boosting its capital expense budget by nearly $70 billion in 2026 it should be noted.
Now, I question whether this huge surge of capital spending will generate the return on investment to justify it over the next few years. My view is that AI related revenues will grow at a slower pace than what would be needed for these investments to produce significant returns.
That said, I believe AI is a true technology paradigm shift. But I see this revolution powering significant productivity gains across the economy rather than generating huge new revenue streams. Take for example, a 20-person law firm that might soon be able to eliminate two paralegals, a legal assistant and two entry-level attorneys and function just as efficiently as those functions are handled by AI in the years ahead.
But those productivity gains will come at the expense of job growth and opportunities, at least in the near and medium term. I could easily see the unemployment rate move to 5% or higher over the next year. And how that will impact the U.S. economy, consumer sentiment and the already dysfunctional political environment are major unknowns that will increasingly play out here in 2026.
At the time of publication, Jensen was long AMZN.
