The Productivity Story Hiding in the Jobs Report

The dominant story about artificial intelligence (AI) in the workplace is the risk of layoffs, as companies use AI models to complete tasks formerly performed by humans. Although there is some truth to this concern, the issue is to what extent AI poses a risk of job displacement.

Concerns about AI contributing to declining employment have been heightened by multiple announcements of large-scale layoffs over the past 12 months. However, it is important to recognize that not all companies are reducing their workforces because of AI. Many are responding to weaker demand, competitive pricing pressures and broader cost-reduction initiatives.

Below is a list of companies that announced layoffs of more than 5,000 employees since August 2025.

Some commentators argue that language like Nestle's "reduce costs and improve operating performance" or Novo Nordisk's "streamline operations" is polite cover for AI quietly replacing employees. Other companies have been more direct. Standard Chartered's chief executive said the bank aims to "replace low-value human capital with technology capital," and Amazon tied its reductions to removing management layers while reallocating spending toward AI.

While it remains a question how fully AI will be incorporated into American businesses, its ability to perform basic to complex tasks is increasingly clear, and companies are reporting measurable operational efficiency with fewer employees. Even so, the most recent labor and productivity reports tell a more nuanced story than the layoff headlines suggest.

Earlier this month the U.S. Bureau of Labor Statistics (BLS) reported that July's unemployment rate declined to 4.1% from June's 4.2%, with the number of unemployed falling by 178,000 to 6.9 million people. The decline came with a caveat, much of it reflected people leaving the labor force rather than finding jobs, a reminder that headline rates don't tell the whole story. The unemployment rate has generally declined since November 2025, when the rate peaked at 4.5%.

Meanwhile, the BLS reported that labor productivity, the output produced per hour, is rising at a disproportionately faster rate than the modest increase in hours worked. During the second quarter of 2026, nonfarm business output increased 1.7%, while hours worked rose only 0.3%, resulting in a 1.4% annualized increase in labor productivity.

The ideal scenario for the adoption of AI is companies increasing profits with improving efficiency while maintaining the same employee count.

AI has even proven useful on the home front. When we bought our property several years ago, I inherited a Pug 6x4 all-terrain vehicle (ATV) from the previous landowner.

It's an amazing vehicle with a large dump bed, slow and loud, but strong. Unfortunately, it's so well made that the manufacturer went out of business in 2000.

Two weeks ago the starter switch failed. I uploaded the above picture into ChatGPT and asked it to list the item number of the ignition switch, suppliers, contact information and costs. In minutes I was surprised to see that there is one supplier with Pug parts.

I was doing my research late at night so I decided to call the number to see if it was still active. Joe answered the phone saying he has the part and to call back in the morning (but not at lunch time). Turns out that Joe has a "Pick and Pull" salvage yard and apparently bought a large inventory of Pug parts. I would have liked to have heard the conversation when he announced to his wife the "gold mine" of buying most of the available Pug parts. "What's a Pug?"

Arguably it may not be his most profitable investment, but I was glad he had the $100 switch part.

What does this mean to me?

There is no question that AI and its rapidly expanding applications raise many important issues. Valuations of AI-related companies, hyperscalers and technology providers have soared as investors project substantial growth in revenue and profits.

A similar pattern developed during the 1990s with the rapid expansion of websites, hyperlinks and online commerce. Investors drove technology stock prices higher based on expectations of extraordinary growth among companies developing the hardware and software needed to support the internet, as well as businesses incorporating online shopping into their operating models.

Investors anticipated that online commerce would generate enormous sales growth by allowing consumers to complete purchases from the convenience of their homes. Venture-capital and private-equity firms invested millions of dollars as early-stage shareholders, with some earning billions when these companies went public.

However, as the online marketplace became increasingly saturated, growth expectations began to moderate. Investors started liquidating holdings and reducing new capital commitments after concluding that many internet-related companies could not sustain the exponential growth rates of the preceding years. This reassessment ultimately contributed to the collapse of many highly valued technology stocks during the dot-com downturn.

During the late 1990s we moved to Cupertino and had an office in downtown San Jose. We experienced firsthand the significant growth in net worth of our clients who worked in or invested in the technology industry. There were warning signs the technology boom was running out of momentum in the late 1990s, and we may see similar signs in the AI industry. We will share our observations in these UPdates if we believe similar signs are developing.

The lesson of that era was not that the internet failed. The technology succeeded even as many individual stocks did not, which means owning the theme is not the same as owning the winners. The practical response is deliberately boring: diversification, thoughtful position sizing, and rebalancing when any single theme grows into an outsized share of a portfolio, because concentration is the one risk an investor can actually control. What we will be watching from here is whether earnings and margins grow into today's valuations, not the layoff headlines.

If AI-related holdings have quietly grown to dominate your portfolio, that is worth a conversation. Let us know if you have any questions or comments about this UPdate. We also welcome the opportunity to connect to discuss creating your financial plan to retire financially independent.

DISCLAIMERS Up Capital Management is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. The opinions expressed in this commentary are those of the author as of the publication date and are subject to change without notice. This material is for informational purposes only and does not constitute individualized investment, tax, or legal advice, and references to specific companies are for illustration only and are not recommendations to buy or sell any security. Up Capital Management or its clients may hold positions in companies mentioned. Forward-looking statements, including observations about artificial intelligence and comparisons to prior market periods, involve risk and uncertainty, and actual outcomes may differ materially. Past performance is not indicative of future results. Data from third-party sources, including the U.S. Bureau of Labor Statistics, Trading Economics, and Reuters, is believed reliable but is not guaranteed.

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