The Coming White-Collar Recession

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Summary

- Today, we take a look at the improving outlook for the blue-collar workforce, which has struggled for decades.
- In addition, the AI revolution has the potential to be more disruptive to the white collar workforce than any paradigm shift in U.S. history.
- These trends could have substantial impacts on the economy, the job markets, housing, and commercial real estate in the quarters and years ahead.
- We examine the potential ramifications of the shifting prospects for these two key job demographics in the paragraphs below.
- Looking for a helping hand in the market? Members of The Biotech Forum get exclusive ideas and guidance to navigate any climate.



Today, we are going to time warp ourselves back 35 years. The year is 1990. The Berlin Wall had just fallen in November of the previous year. The long Cold War was rapidly coming to an end, and Americans were looking forward to spending the long-promised "peace dividend."

Globalization was soon put on steroids as the Cold War came to a close. NAFTA was signed at the very beginning of 1994, an agreement Ross Perot stated would cause a "giant sucking sound" as manufacturing jobs fled the United States. Something that in retrospect, seems at least prescient. This globalization wave accelerated even further as China was welcomed to the World Trade Organization in late 2001, a few months after 09/11.



What followed was a huge reduction in manufacturing employment across the United States. Much of the Midwest and other regions of the country like Pennsylvania were turned into the Rust Belt. The loss of millions of relatively high-paying blue-collar jobs is one of many factors driving increasing wealth inequality over recent decades in the U.S. and has also been a factor in increasing political polarization in the country.



Well, it seems history is not without an appreciation for irony. An inflection point is on the horizon that few are discussing. The prospects for the blue-collar workforce appear to be improving. The new administration is quite focused on reshoring manufacturing back to the States. Towards that end it has implemented the biggest hike in tariffs on imports in generations.



This is resulting in a huge and much-needed surge of tariff revenues into the U.S. Treasury. In addition, a rash of huge multinational companies have announced significant expansions to plans to add manufacturing capacity in the United States in 2025. A partial list follows below.



In addition, hundreds of billions of dollars are being allocated to build massive AI Data Centers for the likes of Amazon.com, Inc. (AMZN), Meta Platforms, Inc. (META), Alphabet Inc. (GOOG) (GOOGL) and Microsoft Corporation (MSFT). This is creating jobs for tens of thousands of positions for construction workers, electricians, plumbers, carpenters, pipefitters, HVAC personnel, etc.



This huge construction boom should also significantly boost the economic prospects of states with access to low-cost and abundant natural gas supplies as this will be the primary source of delivering the massive amounts of electricity these facilities demand. This is why states like Texas, Pennsylvania and Louisiana have garnered huge new AI data center projects. This is also triggering a renaissance for the nuclear utility industry. A proposed new $25 billion AI data center in the panhandle of Texas could end up hosting the nation's largest nuclear energy site.



Then, there are large numbers of recent migrants who are leaving the country in 2025. Some 1.6 million of which have left the United States year to date, mostly via self-deportation. All things being equal, this should open up new blue-collar jobs in industries like home building, which has been heavily dependent on this labor source. These trends could provide a large boost to vocational education across the nation.

In contrast, the prospects for the white-collar workforce are noticeably dimming. The AI Revolution has a high likelihood of displacing workers at a faster rate than any paradigm shift in history. If AI delivers the productivity improvements projected, it will result in millions and millions of job losses. In addition, almost all of these job reductions will happen in the white-collar workforce.



Among the jobs most likely to be reduced or eliminated are sales and customer service representatives, entry-level research and financial analysts, legal and office assistants and even software programmers. A recent Federal Reserve Bank of New York survey found that 6.1% of computer science grads are out of work as are 7.5% of computer engineering grads. These are among the highest unemployment rates for all college majors.

For decades, much of the younger generation as well as displaced employees were told to "learn to code" to achieve job security. With the development of AI, that is no longer the case. It is now getting to the time of the year when corporate managements are starting to huddle to map out budgets and core priorities for 2026. How many of those planning sessions will be around major pushes to integrate more AI into operational and business processes? My guess is a high percentage, and those targeted productivity pushes will result in considerable job losses in 2026, in my opinion.



A recent small business blog survey offered up the following predictions (above). Another similar exercise in July had some of the following findings.



So, the $64,000 question for the economy and the markets is will new jobs be created fast enough to offset the massive job losses driven by AI in the years ahead? I am not one to doubt American ingenuity. However, it is hard for me to fathom new job creation being close to sufficient to replace job losses from AI in the years ahead if predictions come anywhere close to coming to fruition.

That means the unemployment rate is likely to tick up significantly in the coming quarters. This is going to particularly impact the younger generations of white-collar workers given that AI will significantly reduce entry-level positions. And this is a generation already struggling with massive student loan debt, whose payments have recently been restarted after a four-year taxpayer hiatus. Already, student loan delinquency rates are surging, recently hitting 12.9% and credit scores for millions of individuals with student loans are falling.



Accelerating white collar job losses, falling credit scores and rising delinquency rates are hardly supportive of demand for large-ticket items like vehicles and discretionary travel. It is also another headwind for the rapidly deteriorating housing market which I covered again in an article earlier this week.



If white collar jobs are displaced by AI and they cannot be replaced at nearly the same pace, it could trigger an overall recession in 2026 or 2027. It also could be the death knell for many office properties, one of several sub-sectors of the CRE space that are already struggling mightily.

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