The “Low Hire, Low Fire” Economy and Where Investors May Find Opportunity



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What this video's about

In this episode of The Market Share, Paul Gifford, Chief Investment Officer at 1st Source Bank, sits down with Director of Research Rob Romano to discuss a labor market that looks very different from past cycles.

Hiring has slowed. Layoffs remain low. Productivity is becoming increasingly important to economic growth. At the same time, technology and artificial intelligence are reshaping how profits, wages, and investment opportunities are distributed across the economy.

Paul and Rob explore what this "low hire, low fire" environment means for investors and where they continue to see opportunity in today's markets.

A labor market unlike previous cycles

Rob describes today's labor market with a phrase investors are hearing more often: "low hire, low fire."

Layoffs have remained relatively stable, and weekly jobless claims have not shown a significant increase. Hiring, however, has slowed considerably. Monthly job growth now averages roughly 50,000 to 100,000 jobs, well below the 150,000 to 200,000 range seen in recent years.

Another striking figure is the number of people outside the workforce. Rob notes that roughly 104 million people are currently not participating in the labor force, a record high.

Some of that shift reflects demographics and retirements, but not all of it. Certain workers have become disconnected from the labor market entirely, which has reduced labor supply and changed the dynamics of economic growth.

The Federal Reserve now estimates that only 50,000 to 75,000 new jobs per month are needed to keep unemployment stable. That is a meaningful change from previous cycles and highlights how dependent the economy has become on productivity gains rather than workforce expansion.

Technology is changing the balance between labor and capital

As labor force growth slows, productivity has become increasingly important. Rob explains that much of today's productivity improvement is tied directly to investment in technology and artificial intelligence.

Those gains, however, are not being distributed evenly.

"A lot of the benefit is accruing to corporations and shareholders through higher profit margins, and less so to labor," he says.

The share of income going to labor remained relatively stable from 1960 through 2000. Around the early 2000s, that trend began to shift lower. Many economists now view this change as structural rather than temporary.

Several forces are contributing:

• Increased global competition
• Large-scale investment in automation and technology
• The rapid growth of AI and intangible assets

AI spending alone is projected to reach approximately $1 trillion by 2027, up from about $150 billion in 2022. Unlike traditional industrial investment, many AI-driven platforms can scale rapidly without requiring proportional increases in labor.

Where investors may find opportunity

While the S&P 500 remains near all-time highs, Rob points out that leadership in the market has become increasingly concentrated. The top ten companies now account for roughly 40 percent of the index.

That concentration has led the investment team to look more closely at areas that have lagged behind in recent years.

Rob highlights several opportunities:

• Mid-cap stocks
• Small-cap stocks
• International equities

These segments currently trade at roughly 15 times earnings, compared to approximately 21 to 22 times earnings for the S&P 500.

At the same time, earnings expectations for mid- and small-cap companies are improving significantly beginning in 2025. That combination of lower valuations and strengthening earnings growth creates a more attractive setup for long-term investors.

Paul notes that the team has increased allocations to international markets in recent months as part of that broader diversification strategy.

Conclusion

Today's economy depends less on labor force expansion and more on productivity, technology, and capital investment. That shift is changing how markets behave, how profits are generated, and where investors may find value.

As market leadership broadens beyond the largest companies, diversification and disciplined portfolio construction remain essential.

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