The economy presents a confusing picture with acceptable GDP growth but virtually no job creation. This disconnect creates anxiety because for most people, job security, not GDP, is the primary measure of economic health. This leads to a feeling of being 'schizophrenic' about the economy's true state.

It's possible to have strong GDP growth without a corresponding drop in unemployment. Goldman Sachs' forecast squares this by pointing to accelerating productivity growth, meaning the economy can expand its output without necessarily hiring more workers.

The combination of solid GDP growth and weaker job creation is not necessarily a warning sign, but a structural shift. With productivity growth rebounding to its 2% historical average and labor supply constrained by lower immigration, the economy can grow robustly without adding as many jobs as in the past.

Despite strong productivity numbers alongside flat job growth, economists believe it is too early for AI to be the primary driver. The gains are more likely attributable to businesses becoming more dynamic and achieving better labor-market matches following the pandemic disruptions, rather than a widespread technological revolution.

While fears of job loss from automation dominate headlines, Vanguard's Joe Davis argues the real drag on economic growth is a *lack* of automation. The service sector, representing 80% of jobs, has seen little productivity improvement since the internet boom, leading to overall economic stagnation.

The US economy is currently experiencing near-zero job growth despite typical 2% productivity gains. A significant increase in productivity driven by AI, without a corresponding surge in economic output, could paradoxically lead to outright job losses. This creates a scenario where positive productivity news could have negative employment consequences.

The labor market faces a dual threat. Weak demand, linked to tariffs and deglobalization, has already pushed job growth to zero. As AI adoption accelerates productivity, it could further suppress labor demand, potentially tipping the economy into a state of net job decline.

While official unemployment rates remain low, a wave of "invisible unemployment" is hitting tech. Companies are achieving growth with flat headcount by leveraging AI, leading to a quiet squeeze on entry-level roles, mid-level performers, and senior executives with outdated skills who are leaving the workforce without being replaced.

Robert Kaplan suggests the labor market's sluggishness might not be a simple cyclical slowdown. He points to a significant "matching problem" where open jobs don't align with the skills of job seekers. This structural issue limits the effectiveness of monetary policy as a solution.