submitted by Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast
The “dot-com” recession of the early 2000s and the Great Recession of 2007 to 2009 have both been described as “jobless recoveries.” In each case, economic growth, as measured by GDP, returned to positive territory as the recession ended, but job growth lagged for years afterward.
During the 2001 tech-driven recession, employment continued to decline through mid-2003, even though the economy had already resumed growth. Following the housing-led Great Recession, employment did not return to its pre-crisis level until 2014, nearly five years after the recession officially ended.
Fast forward to today.
We are now approaching the one-year anniversary of so-called “Liberation Day,” when a sweeping and unprecedented increase in taxes on consumption — in the form of tariffs — was rolled out with the stated goal of “liberating” the American worker and bringing jobs back to the United States, particularly in manufacturing. At the time, press accounts highlighted optimistic projections from officials, who spoke confidently about sizable job gains in the second half of 2025 driven by reshoring and small-business hiring.
Instead, as we enter early 2026, the U.S. economy appears to be on the verge of something different — a jobless boom.
Why jobless, and why a boom?
Start with the labor market. Payroll growth slowed dramatically in the second half of 2025, nearly grinding to a halt. On a year-over-year basis, job growth remained below 1 percent throughout the second half of the year, with the most recent report showing growth of just 0.4 percent.
To put that in historical context, we must go all the way back to the early 1980s to find a similar combination of sub-1 percent job growth occurring outside of an active recession. Even then, that period was sandwiched between two back-to-back recessions. Outside of that episode, year-over-year job growth below 1 percent has almost always been associated with the lead-up to a recession, the recession itself, or the immediate aftermath.
And yet, we are not currently in a recession.
GDP growth did turn negative in the first quarter of 2025, but for a very specific reason. Faced with the looming implementation of tariffs, businesses and consumers rushed to stockpile imported goods. Because imports subtract from GDP, that surge temporarily pulled growth into negative territory. Once that front-loading faded in subsequent quarters, GDP growth rebounded.
In fact, growth came roaring back. Heavy investment in artificial intelligence and data-center infrastructure, along with resilient consumer spending, pushed third-quarter GDP growth above 4 percent. The Atlanta Fed’s GDPNow tracker currently projects growth above 5 percent for the fourth quarter of 2025. In short, while the labor market is clearly showing strain, the broader economy is anything but recessionary.
So how do we reconcile robust growth with such weak job performance?
On the growth side, the answer lies in a combination of strong consumer spending, massive AI-related investment, and the unwinding of trade distortions tied to tariffs. In the third quarter alone, consumer spending and net exports accounted for roughly 93 percent of total GDP growth.
The labor market, however, tells a more troubling story beneath the surface. Initial unemployment claims remain subdued and well below recessionary levels, suggesting that widespread layoffs are not occurring. But continuing claims continue to rise, increasing by 56,000 in the most recent report. The number of long-term unemployed, those out of work for 27 weeks or longer, has climbed by nearly 400,000 over the past year. The number of people working part-time for economic reasons has increased by almost one million, and those not in the labor force who still want a job are up by nearly 700,000.
These are not recession numbers, but they are not healthy numbers either.
The fundamental question now is how long the consumer can continue to carry the economy in the absence of meaningful job growth. Whether the forces at work are AI-driven productivity gains, tariff-related uncertainty, inflation fatigue, or some combination of all three, a sputtering job engine will eventually constrain household income growth. And without sustained income growth, consumer resilience will fade.
A jobless recovery is one thing. A jobless boom may be something entirely new, and far more fragile.
