The latest jobs numbers for the U.S. economy sank like an Iranian ship. Payrolls plummeted by 92,000 in February, a shocking turn of events considering the stock market was anticipating a 59,000 gain in jobs. The results sent shockwaves through Wall Street as analysts searched for reasons for the shortfall.
Ironically, the data published by the Bureau of Labor Statistics appeared three days after payroll processing firm ADP released figures showing private sector firms added 63,000 jobs in February. The discrepancy calls into question the credibility of government data, once considered the gold standard.
Unsurprisingly, the news media, Wall Street and partisan politicians zeroed in on the government payroll numbers, since it reflected poorly on the Trump Administration. The nabobs of negativism posited that tariffs are to blame for the miserable job performance.
However, there are nuanced reasons that explain the economy shedding 92,000 jobs. Here are the major findings based on research and BLS data:
- Government jobs, which helped drive payroll growth under President Biden, have contracted. The trend began in 2025 and has continued a downward spiral.
- Scores of American companies are laying off thousands of workers to offset massive record spending on Artificial Intelligence.
- AI is rippling through the economy, replacing tasks formerly done by workers. More firms are imbedding AI deeper into their operations.
- U.S. firms are reporting higher rates of worker productivity, which reduces the pressure to hire more employees even as firms grow their business.
- Many of America's largest firms rapidly hired staff between 2020 and 2022 after COVID are changing course and slashing jobs to reduce costs after distorted post-pandemic economic growth.
BLS data, cross-referenced with sources such as GovExec and Pew Research, shows the full-time federal civilian workforce grew by nearly 6% under President Biden. Figures document the federal executive branch ticked up 5.5%, rising from 2.17 million employees to 2.29 million.
Overall federal employment, including postal workers, rose 4.8% from 2021 to January 2024. Under President Trump, federal government employment has fallen by 330,000 jobs or 11% since the October 2024 peak. Federal government hiring is no longer a factor in overall U.S. job growth.
Wall Street and some economists pinned the falling payroll numbers on jobs replaced by AI. There is data to suggest that is true, but it is not as significant a factor as the impact of frenetic spending on AI at many of America's largest companies.
Organizations are curbing headcount because of accelerating costs of AI capital expenses. To preserve profits and margins, firms must find ways to cut other expenses. They are betting their AI budget-busting spending will lead to more corporate tasks being performed by AI tools.
Some examples include tech giant Meta, which announced recently it is planning to jettison 20% of its workforce. As of December 31, the firm had 79,000 employees. Meta cited spiraling AI expenditures as the reason for the move. Meta has hiked AI spending this year from $69 billion to $135 billion.
Another corporate behemoth, Amazon, has stepped up its staff reductions, announcing layoffs totaling 16,000 corporate employees in January. Amazon is streamlining headcount while raising its investments in AI and data centers. Amazon expects to spend $200 billion on AI this year.
More companies are joining the race to boost AI spending, while trimming their workforces, including Oracle, Block, eBay Altassian and Autodesk. These U.S. companies and others are predicted to invest up to $700 billion in AI in 2026. Worldwide the number is forecast to hit $2.52 trillion.
Last year, numbers of U.S. firms directly pointed to their use of AI in announcing a 55,000 reduction in employees. That was 12 times the number two years ago, according to the outplacement firm Challenger, Gray and Christmas. The trend is continuing during the first two months of 2026.
Examples include the chemical manufacturer Dow, which announced 4.500 layoffs, citing a simplification in its operating model that leverages AI and automation. Salesforce is cutting 1,000 jobs as it continues to automate customer support jobs using AI.
Other firms embedding AI deeper into their operations while reducing head count include Nike, Pinterest, Angi and Chegg. Global banking giant HSBC announced it is considering "significant" job reductions, which could impact 20,000 people worldwide as it accelerates adoption of AI.
The rapid deployment of AI, coupled with other automation tools, is credited with a surge in U.S. productivity, which grew at a 2.8% annualized rate in the fourth quarter, the latest figures available. Productivity growth exceeded estimates, resulting in higher output with fewer hours worked.
This development is a positive sign for the economy because efficiency gains allowed companies to increase wages, up 1.4% in real terms for the year ending in February, 2026. While wages rose, productivity put a lid on pressures to raise costs for products and services.
Another reason for the tepid job growth is the excess hiring by companies after the COVID pandemic. Once the scourge abated, businesses embarked on a hiring binge to accommodate a surge in buying by consumers. Today's layoffs are the highest since the 2020 lockdowns.
More than 1.1 million job cuts were announced in 2025, a 54% upturn from the same period in 2024. Big Tech has led the layoffs, jettisoning 153,000 employees in 2025. Job cuts in retailing and warehousing are not far behind.
A sharp correction in the labor market was inevitable after 22.1 million workers lost their jobs between January and April of 2020. The discharges reached a zenith in March of that year when 13.5 million Americans found themselves out of work in a single month.
There was bound to be a reset of employment after the post-COVID hiring binge. America's workforce now is undergoing structural and technological changes that likely will continue. The disruption is not unlike what happened after the introduction of computers and the internet.
Expect a slow incremental improvement in jobs throughout the remainder of 2026 with hiring picking up in the second half of the year. If the Federal Reserve delivers a couple of rate cuts, it will stimulate economic activity and hiring. Don't bet against America's economic muscle reversing the jobs trend.
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