Top analyst warns the economy is figuring out how to grow without creating new jobs, leaving a major vulnerability

Last summer, Bank of America Research predicted a “sea change” in the economy as companies showed increasing signs of learning how to be productive with fewer workers, putting process over people. Six months later, analysts see another year of growth—in GDP, not new jobs. It rhymes with another projection, from Goldman Sachs, that “jobless growth” could become the new normal in the 2020s.

Michael Pearce, chief U.S. economist at Oxford Economics, wrote on Wednesday that GDP should expand by 2.8%, accelerating from projections for 2025 growth, as improved productivity increasingly fuels gains.

That’s as the workforce stays generally flat in the coming years with the native-born population aging and President Donald Trump’s immigration crackdown sending net inflows to as little as 160,000 a year—down from more than 3 million a few years ago. This agrees with another projection from last August, when JPMorgan Asset Management strategist David Kelly said it was quite possible there would be “no growth in workers at all” over the next five years.

With the size of the labor force stagnating, Pearce said economic growth will rely more on higher productivity, which is advancing amid cyclical strength and a more dynamic business environment while earlier research and development investments start to pay off. And later in the decade, AI will play a bigger role in boosting productivity.

“That would put the break-even rate of payroll growth, or the number of jobs the economy needs to create to keep the unemployment rate stable, close to zero,” he added.

The labor participation rate among the native-born population remains in a downtrend over the long term, Pearce noted, despite a recent uptick. As labor supply remains weak, demand is also being depressed by elevated policy uncertainty and past over-hiring, with AI adoption poised to weigh on payrolls too.

Oxford Economics expects job gains to average less than 40,000 per month during 2026, which should be enough to keep the jobless rate stable. Such anemic growth would mark another year of a labor market characterized by a “low-hire, low-fire” trend. After recent revisions, the Labor Department lowered its reading on 2025 job gains to just 181,000, down from an initial print of 584,000 and from 2024’s gain of 1.46 million.

On a monthly basis, last year’s average hiring rate was just 15,000, but the jobless rate ended 2025 at 4.4%, little changed from 4% at the start of the year.

“Productivity is the ultimate source of sustainable improvements in real wages, but it may put downward pressure on jobs growth in the near term as firms can do more with fewer workers,” Pearce said.

Gad Levanon, chief economist of the Burning Glass Institute, has estimated that white-collar jobs in particular are shrinking and yet growing more productive, peaking in employment in November 2022 (the same month as ChatGPT’s release).

Looking at finance, insurance, information, and professional services, he noted a clear break from historical patterns after 2022: employment peaked then edged down, while real GDP continued to rise and even accelerated in some periods.

“AI-enabled automation is therefore a plausible contributor, even if the data cannot isolate its specific role,” he wrote.

For his part, Pearce drew a parallel with the jobless recovery during the early 2000s, when the economy was similarly emerging from a period of over-hiring while technological advances were helping productivity surge.

Today, AI’s labor-saving potential could also boost corporate profits as a share of the economy with workers accounting for a smaller slice, he said. But that represents another risk.

“This leaves the economy vulnerable to shocks, because the labor market is the main firewall against a recession,” Pearce warned. “Spending by middle- and lower-income households relies heavily on the health of the labor market.”

This story was originally featured on Fortune.com