This column concludes a series exploring artificial intelligence’s broader economic consequences, focusing on labor markets, corporate profitability, and macroeconomic trends. The central argument is that the current U.S. labor market—characterized by restrained hiring and limited layoffs—is being shaped more by long-term structural forces, particularly AI, than by short-term economic cycles. This dynamic has disproportionately affected young professionals in office-based roles, prompting a reevaluation of workforce trajectories.
Earlier pieces in the series examined societal responses to automation, expressing cautious optimism. It was suggested that widespread disruption could be mitigated through measured workforce reductions by employers, career transitions by younger workers into skilled trades, and the emergence of new job categories not yet anticipated. Additionally, strengthening social support systems may prove necessary to assist those displaced.
A July 3 article in The Wall Street Journal titled “CEOs Say It Loudly: AI Will Wipe Out Many Jobs” reignited discussion. In it, Ford Motor Company’s chief executive, Jim Farley, stated during a public forum that AI could eliminate half of all white-collar positions in the United States. This projection underscores the scale of potential transformation.
From a corporate earnings standpoint, such efficiency gains could enable firms like Ford to achieve sustainable profitability for the first time in decades. Furthermore, the current valuation of the S&P 500—trading at 24 times analysts’ 2025 earnings estimates, compared to a 10-year median forward price-to-earnings ratio of 19—reflects investor confidence in earnings durability. This premium extends beyond the technology sector; all but two of the index’s eleven sectors (Healthcare and Energy) are valued above their historical norms. One explanation lies in expectations of productivity growth driven by AI adoption, alongside strong profit potential for major tech firms leading the charge.
In the near term, the sheer volume of capital flowing into AI infrastructure is acting as an economic stimulus. According to economist Paul Kedrosky’s analysis cited in a Morning Brew article from August 8, 2025, AI-related investments contributed 1.3 percentage points to the 3% GDP growth recorded in the previous quarter. Major tech companies—including Meta, Alphabet, Microsoft, and Amazon—are collectively allocating $320 billion this year to AI development and data centers, up from $230 billion the prior year, as reported by CNBC.
The long-term economic effects will hinge largely on the pace and extent of workforce displacement and the policy responses they trigger. Since consumer spending drives roughly two-thirds of the U.S. economy, any significant erosion in employment or income could have far-reaching consequences. While some analysts interpret high equity valuations as a sign of recession resilience, the business cycle has not disappeared. However, corporate earnings may now be more insulated from downturns due to efficiency improvements enabled by intelligent systems.
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Capital Perspectives: AI’s economic implications
Today’s column is the final in a series on AI, this time focusing on its economic implications. n nThe primary view expressed in the first of this series was that the “low hiring, low firing” U.S. labor market, which is disproportionately pushing up the unemployment rate for young white-collar workers, has more secular (i.e., AI’s impact) than cyclical underpinnings. My second column explored the societal implications of AI’s labor market impact. Therein I shared that I am optimistic that we, as a society, can navigate AI’s labor market disruption without extraordinary strife and hardship through a combination of (1) Employers moving slower to cut headcount than they probably could, (2) Young, would be white-collar workers, pivoting to blue-collar professions and (3) New, not yet thought of, jobs being created. Additionally, an expansion of the social safety net may be seen as appropriate to help affected individuals. n nA July 3rd article in The Wall Street Journal by Chip Cutter and Haley Zimmerman titled “CEOs Say It Loudly: AI Will Wipe Out Many Jobs” inspired me to revisit the AI topic. Below is a quote from the article to help frame the issue: n n“Artificial intelligence is going to replace literally half of all white-collar workers in the U.S.,” Ford Motor Chief Executive Jim Farley said in an interview last week with author Walter Isaacson at the Aspen Ideas Festival. n nThe most recent in this series evaluated the corporate profit implications of AI, which is closely tied to the broader economic considerations discussed below. Therein I opined that if Ford can soon do without half of its white-collar workforce, perhaps that company can earn its cost of capital for the first time in a generation. I also noted that the currently high S&P valuation (Per Bloomberg, the S&P 500 trades for 24x ’25 sell-side EPS estimates compared to a 10-year median forward P/E of 19x.) is not just a tech story – All but two (Healthcare and Energy) of the eleven S&P 500 sectors trade at a premium to their 10-year median forward P/Es. One explanation for elevated multiples is that market participants have high confidence in large U.S. business’ ability to maintain or grow earnings, even if faced with a weak economy. Many argue this confidence is justified given the productivity enhancements AI adoption promises in addition to the earnings potential of the AI purveyors (i.e., mega-cap tech companies) which are among the index’s largest constituents. n nRegarding the economic implications of AI, in the near-term the enormity of the investment dollars is an economic boon. In an 8/8/25 article from Morning Brew titled “AI is helping to keep the economy afloat,” author Sam Klebanov noted that “AI investments accounted for 1.3% of the 3% the GDP grew last quarter, according to number crunching by economist Paul Kedrosky.” The article further noted that Meta, Alphabet, Microsoft, and Amazon are budgeting $320 billion for AI tech and data center investments this year, higher than last year’s $230 billion, per CNBC. n nThe long-term economic implications of AI will mostly depend on how much labor is displaced and the public policy response if said displacement is large and/or rapid. Reason being, consumer spending is 2/3 of the U.S. economy. Some market commentators take the previously referenced high stock valuations to mean that the market views the U.S. economy as effectively recession proof. For various reasons, the U.S. economy is less cyclical than it once was, but I disagree that economic cycles have been vanquished. I do, however, buy into the notion that general corporate profitability is more insulated from the economic cycle than it was pre-AI.