AI’s projected impact on the job market

Artificial intelligence is rapidly transforming the U.S. job market, with effects that are both promising and disruptive. Sectors such as technology, finance and logistics are at the forefront of AI adoption, experiencing both productivity gains and workforce displacement. According to Joyce Chang, chair of Global Research at J.P. Morgan, “AI is amplifying uncertainty about the future of work, especially for younger workers and those in roles most exposed to automation. While some jobs are being created in tech and data analysis, others in routine office and support roles are at risk.”

Some data suggest that industries with high exposure to AI are experiencing slower job growth and, in some cases, increased layoffs. For example, the Challenger report for March showed that about a quarter of announced job cuts cited AI as the reason, a sharp increase from previous years. Abiel Reinhart, a senior economist at J.P. Morgan, said, “We’re not seeing a deterministic outcome where AI simply destroys jobs. There’s a wide band of uncertainty: some firms are using AI to augment workers, while others are using it to replace them.”

A poll from the Pew Research Center clearly illustrates this uncertainty. Only 5% of U.S. workers believe that AI will lead to more job opportunities for them in the future, while 64% expect fewer opportunities. Expert responses to the same question were more mixed, with no clear consensus on AI’s prospective impact. 

Geopolitical conflict leads to greater uncertainty

The ongoing conflict in the Middle East has introduced new risks to the U.S. labor market through its effects on energy prices, inflation expectations and business sentiment. The closure of key shipping routes and disruptions in oil supply have pushed gasoline prices above $4 per gallon, with some forecasts warning of further increases if the situation escalates. This energy shock is already feeding into higher headline inflation, which rose to 3.4% year-over-year in March, up from 2.4% in February.

“A sustained rise in energy prices would keep headline inflation high, but it would also likely slow growth and weaken the labor market,” explained Feroli.

While the U.S. is less exposed to direct energy shortages than many other countries, the indirect effects through global supply chains and financial markets can still be significant. “Elevated oil prices could drag down global growth in the near- and long-term. The longer the conflict goes on, the more downside risks build for the U.S. economy,” said Chang.

Despite these risks, the U.S. labor market has so far absorbed the shock, with jobless claims and hiring rates remaining relatively stable. However, the outlook is highly contingent on the duration and intensity of the conflict.

Are we in a recession? 

With so many crosscurrents, the question on many minds is whether the U.S. is heading into a recession. The answer, according to the dashboard of leading indicators and the consensus among J.P. Morgan’s analysts, is “not yet.”

The Sahm rule, a simple recession indicator that triggers when the three-month average unemployment rate rises by 0.5 percentage points or more above its low of the previous 12 months, has not yet been breached. Initial jobless claims remain low, and real wage growth, while slowing, is still positive. However, uncertainty about whether unemployment has peaked, the softening in job openings and quits, and the uptick in underemployment all point to a more fragile expansion.

“We’re not in a recession, but the margin for error is shrinking. The labor market is more exposed to shocks than it was a year ago,” said Feroli.

Reinhart agreed. “The leading indicators are mixed. Claims are low, but hiring and quits are softening. It’s a time for vigilance, not panic.”