Top of the Morning: The AI Economy 4Q26 update - Part 2
The desk posits that while AI's impact on job growth remains a popular narrative, recent assessments suggest its influence on overall job markets is less disruptive than previously thought. According to Andrew Dubinsky from UBS, there are minimal signs of AI-related job losses affecting aggregate employment or the unemployment rate, contrary to earlier fears and headlines that suggested a seismic shift in labor dynamics (per the full note ). The continuation of a declining unemployment trend, alongside stable job growth across sectors with varying AI exposure, reinforces this perspective and indicates resilience in the labor market amid technological advancements.
What the desk is arguing
The desk frames this as an essential reassessment of AI's pervasive influence on employment metrics. Dubinsky's insights highlight that, despite initial fears of widespread job reductions attributed to AI, the labor market has not shown significant disruption, particularly in sectors most exposed to automation technologies.
Specifically, he notes a consistent downward trend in unemployment, with little differentiation observed in job growth among high versus low AI exposure industries. This points to a broader resilience within the job market, underscoring an ongoing need to analyze sector-specific dynamics rather than relying solely on aggregate figures.
Where it sits in our coverage
Our current consensus target for USD/EUR remains at 1.075, within a range of 1.04 to 1.12. Among our peers, jpmorgan anticipates a target of 1.10 for March 2026, while bofa suggests a more cautious 1.04 for the same tenor.
This view aligns closely with jpmorgan's expectations, placing our stance somewhat toward the upper bound of the current market predictions. The resilience observed in employment metrics may bolster the case for a stronger dollar, particularly if the US economy maintains this momentum relative to its eurozone counterpart.
How other firms see it
Group aligned firms such as jpmorgan highlight a similar optimistic outlook on the USD, likely factoring in the labor market dynamics that suggest stability and possible growth in the context of AI advancements. In contrast, bofa holds a more bearish view, cautioning against overestimating economic strength amidst emerging technological shifts.
Watching the USD/EUR trajectory will be crucial, especially as recent labor data presents a mixed picture for central bank policy, particularly the Federal Reserve, which will influence overall currency movements based on economic resilience and job market stability.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01AI's influence on US job growth is less disruptive than initially feared, according to UBS analysis.
- 02The unemployment rate continues to decline, showing resilience amidst technological advancements.
- 03Job growth trends across sectors indicate minimal differences, suggesting stability in the labor market.
- 04USD/EUR dynamics may be impacted by ongoing economic resilience tied to AI integration.
Market implications
Traders should monitor the USD/EUR exchange rate closely, especially with the upcoming labor market reports, as any indication of shifts could influence perceptions around economic resilience. A consistent downward trend in unemployment could signal a stronger dollar ahead of upcoming policy decisions from the Federal Reserve.
Risks to this view
A sudden shift in labor market dynamics, or significant unexpected data points indicating job losses in AI-exposed sectors, could force a reevaluation of our outlook. Additionally, if central banks signal a shift towards more aggressive tightening in response to inflation, this could also impact the USD’s performance.
Hi everyone, Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel. For today, we are revisiting our ongoing conversation on the AI economy.
There is a correlating publication series and presentation on this topic from the UBS Chief Investment Office, and we've covered this here on Top of the Morning in times past with their asset allocation team, our U.S. economist, Andrew Dubinsky, joining me actually here today in studio. And today's conversation, actually a follow-up to one I had with senior asset allocation strategist, Paul Hsiao, just a couple of weeks ago on the AI economy. But to dive further into it today, Andrew, of course, want to welcome you back.
Thank you for joining us. Maybe, Andrew, as a starting point, can you speak to how much of a factor is artificial intelligence in job growth and the unemployment rate today? Yeah.
So this was a topic that was really hot about three, four months ago, where we saw just a lot of headlines from companies about cost reductions related to AI, particularly in their employment force. And so we have a little bit more time to look at the data, and we wrote a report then just noting that we just weren't seeing huge signs of it in the aggregate job growth and really had to zoom in on certain sectors. And the unemployment rate since then has generally drifted lower.
And when you look at the themes within the unemployed, you just don't really see a lot of signs that the occupations with more AI exposure are doing worse than the occupations that have low AI exposure. And just similarly, when you look across job growth and you look at high exposure industries versus low exposure industries or in occupations, you just see very modest differences in job growth trends. And so I think the takeaway is similar to where we were three, four months ago, is just not really seeing big signs that it's causing a disruption in the labor market, and you have to zoom underneath the details within some sectors and industries and age groups to really see something.
Let's perhaps do that, Andrew, in terms of impact, disruption. If we look across industries, groups, sectors, where are we seeing the most impact today? Yeah, so I would note there's probably two themes that are still pretty clear, and if anything, maybe have strengthened in some dimensions.
So looking in the industries, we can see in the BLS job growth data, clearly soft employment hiring within software developers, computer systems designers, so we'll call it like high tech employment that has a lot of exposure to AI tools. And so for example, we're seeing in that group of industries, negative job growth of let's say negative 1.4% year over year versus modestly positive job growth in general. And if you look within highly exposed occupations and young people, you can see even slower rates of job growth over the past year.
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