Weak Jobs Data Raises Spending Concerns
One of the main pillars supporting the US economy — consumer spending — may be beginning to show signs of weakness. For years, a robust job market has prevented Americans from reducing their spending, even amid ongoing concerns about the future of the economy. People’s dollars contribute to two-thirds of economic growth. The robust US stock market has significantly contributed to increased spending, especially among affluent households that are more inclined to hold financial investments. The robust foundation that once bolstered spending is now facing significant strain. On Friday, it’s reported that employers shed 92,000 jobs last month as the unemployment rate rose to 4.4% from 4.3%, continuing a painful stretch of sputtering job growth. In the midst of morning trading, all three major stock indexes experienced a decline, following President Donald Trump’s declaration that he will not conclude his conflict with Iran unless the Middle Eastern adversary consents to a “unconditional surrender.” That comes as spending is already facing challenges: Retail sales experienced a decline of 0.2% in January compared to the previous month, according to the Commerce Department’s report on Friday, marking the most significant drop since May. January’s reading fell short of the anticipated 0%, as indicated by a poll of economists. The figures have been adjusted for seasonal fluctuations, yet they remain unaltered by inflation. The report experienced a delay of several weeks due to the government shutdown that occurred last year.
A continuous trend of weak or diminishing spending — possibly caused by falling stock prices, increasing unemployment, or a mix of both — could pose significant challenges for the US economy. Investors and Federal Reserve policymakers are grappling with the implications of AI on the labor market, the complete ramifications of which are yet to be determined. Notably, a prominent tech company recently identified AI as the primary factor behind its decision to reduce its workforce by half. Currently, economists largely anticipate that larger tax returns this year will stimulate spending in the first half of 2026, counterbalancing the potential risks to expenditure. “While weather may again drag on retail sales in February, this period is likely to be an aberration amidst a still solid consumer outlook,” Ben Ayers wrote. “Federal tax refunds are coming in nearly 20% higher than 2025, which should help to fuel renewed purchase behavior this spring.” In 2025, Americans maintained their spending levels, even in the face of President Donald Trump’s tariff increases, ongoing economic pessimism, and the lowest job growth recorded outside of a recession since 2002. Although the unemployment rate is currently low and there hasn’t been a significant increase in new applications for unemployment benefits, the future stability of the labor market in 2026 is uncertain — it could either remain steady or decline. This is significant, as economists warn that if Americans lose their jobs, they might have to reduce their spending, which could impact company profits and lead to further layoffs.
Numerous surveys and polls indicate that Americans continue to express frustration regarding the elevated cost of living in recent times. That’s particularly true for low-income households, which have experienced their wages lagging behind those of high earners in recent months, according to data from the Federal Reserve Bank of Atlanta. Recent data indicates that lower and middle-income Americans have increasingly relied on credit cards and other loans in recent months. This highlights the growing economic inequality in America in recent years, a phenomenon some economists describe as the “K-shaped economy.” Alongside the deceleration of wage growth and an increased dependence on debt, low-income Americans are less inclined to possess financial investments, resulting in their exclusion from the stock-market gains of the previous year. The emergence of AI has introduced a significant level of uncertainty into the labor market. Although there is some evidence suggesting that AI has not yet disrupted jobs, the recent layoffs at major tech companies, the progress in AI models, and the widespread circulation of essays cautioning against an impending AI-induced jobpocalypse have heightened apprehensions.
Block epitomized those concerns last month when it announced a 40% reduction in its workforce, stating that intelligence tools “have changed what it means to build and run a company.” Tech work has been a focal point in discussions about AI and employment, as the technology has allowed software developers to streamline certain aspects of the coding process. A Google study from September revealed that 90% of tech workers utilize AI for tasks such as writing and modifying code. However, companies such as Anthropic are currently endeavoring to replicate that success in various domains of office work. The company has enhanced its widely-used Claude assistant to improve its capabilities in human resources, design, legal, finance, and cybersecurity roles, causing a stir in the software stock market as a result. Some experts assert that the rhetoric surrounding AI’s current capabilities is overstated, although there is a consensus that AI will transform jobs. The timeline and specifics remain ambiguous, and this lack of clarity is probably complicating hiring decisions for companies. Oren Etzioni previously stated that there’s “genuine and appropriate anxiety” surrounding AI’s impact on jobs.
However, he anticipates significant transformations to occur throughout the decade instead of in the immediate future. “If we think about the next 10 years, we’re going to see a very different world than we do have today,” he stated. In the previous year, the wealthiest individuals in America engaged in spending at a rapid rate, primarily fueled by a robust US stock market and increasing home equity. Moody’s projected that the top 10% of US earners accounted for approximately half of consumer spending in early 2025. The stock market concluded 2025 with a third consecutive year of double-digit gains. However, that situation may evolve if the conflict in the Middle East persists, continuing to impact significant stock indexes. On Thursday, the Dow closed lower by 785 points, or 1.61%, as the S&P 500 sank 0.56% and the tech-heavy Nasdaq fell 0.26% — all while oil prices surged. The losses extended into Friday as Trump suggested that his conflict with Iran is far from over. “With the stock market under pressure in recent months, the significant boost to spending by high-income households from rising stock market wealth has faded,” Michael Pearce wrote.
