In some parts of the United States, demand for workers has outstripped supply. While it’s hitting record highs in the stock market, hiring is decelerating at a breathtaking clip. Even more alarmingly, experts are ringing the alarm bells about the possible consequences of this disturbing trend, especially considering some recent policy changes. Chief economists and financial analysts lament a new normal of vigorous economic expansion without concomitant job formation. This disconnect presents serious challenges in the employment arena.
That’s the big takeaway, according to Eugenio Alemán, the chief economist at Raymond James. Businesses are making massive bets on new technologies, most notably artificial intelligence (AI). As he explained, this investment frequently results in cuts elsewhere, including on hiring. This shift in business focus is one of two key factors that has created an extremely difficult employment landscape.
Slow Hiring Amid Economic Growth
In recent months, U.S. firms have drastically curbed their recruitment activities. Data reveals that the average pace of job gains for the three months ending in September was approximately 62,000, a stark contrast to previous employment levels. On top of that, the economy lost jobs in both June and August, sending economists into a tizzy.
James Ragan, the director of wealth management research at DA Davidson, painted a dire picture on employment. He pointed to these problems as a direct result of the sweeping changes to trade and immigration policy enacted under President Donald Trump. He stated, “It’s been a challenging year for employment precisely because of the changes in trade and immigration policy affecting both labor supply and demand.”
Fed officials have gotten too cute with the issue. They understand that the chasm between torrid economic expansion and anemic job creation makes for some very bad policy choices. The persistent challenge of creating jobs even as GDP continues to grow has had many economists scratching their heads trying to figure out what exactly should be done.
Economic Indicators and Future Expectations
In the second quarter, firms invested 4.4% of GDP on information processing equipment and software. This commitment serves as an indicator to their continued investment in tech. Nevertheless, perhaps unsurprisingly, experts are already trying to downplay the expected effects of a possible government shutdown on economic activity. The first signs are that the shutdown will severely damage GDP this quarter. As prudent as this measure seemed at the time, many are counting on the economy to make up most of these losses by early next year.
Ryan Sweet, chief U.S. economist at Oxford Economics, described the predicament that policymakers now find themselves in. “When it comes to monetary policy, the narrative next year is going to be about how to handle a jobless expansion,” he asserted. Sweet went on to ask how we might incentivize businesses to do more hiring in an environment where that’s not the economic reality.
The FOMC’s monetary policy stance will not be set in stone as it steers through these uncharted waters. Lorie Logan, president of the Dallas Fed, expressed caution regarding future rate cuts, stating, “With two rate cuts now in place, I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly.”
The AI Investment Boom
Industry experts are largely on the same page that investment in AI technology continued to excel throughout the recent hiring slump. They hope that it will hit its high water mark in about a year. While this investment trend is a tremendous opportunity for our economic and social growth, it’s important to consider what this trend means for the future of jobs.
Christopher Waller, a Fed Governor, captured the essence of the current economic situation by stating, “Something’s gotta give — either economic growth softens to match a soft labor market, or the labor market rebounds to match stronger economic growth.” This short statement poignantly highlights the precarious balancing act that policymakers need to maintain to achieve both fiscal soundness as well as long-term job growth.