Million Missing Jobs Clearly Shows AI Is 'Automating Away Tech Jobs,' Amid 'Stagflation' Worries, Warn Economists
News Summary
A preliminary revision from the Bureau of Labor Statistics (BLS) erased 911,000 previously reported U.S. jobs, the largest downward adjustment for the year through March 2025, raising concerns about labor market strength and solidifying expectations for a Federal Reserve interest rate cut next week. Comerica Bank Chief Economist Bill Adams noted an outsized downward revision in the information industry, stating that AI is “automating away tech jobs.” Significant cuts were also seen in leisure and hospitality, retail, and professional services, indicating the economy entered 2025 with less momentum than previously understood. Chris Zaccarelli, CIO for Northlight Asset Management, cautioned that while deteriorating job data might ease the Fed's path to rate cuts, high upcoming inflation data could lead the market to worry about “stagflation.” President Donald Trump also criticized the Fed for being “dangerously behind the curve.” Despite the news, the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ) saw slight gains in premarket trading.
Background
The U.S. Bureau of Labor Statistics (BLS) regularly revises employment data to provide a more accurate picture of the economy. This annual revision, effective through March 2025, erased 911,000 jobs, representing a historic downward adjustment significantly exceeding the historical average, indicating that the U.S. labor market's actual performance in early 2025 was much weaker than previously reported. The Federal Reserve operates under a dual mandate of maximizing employment and maintaining price stability. Amid ongoing inflationary pressures and slowing economic growth, weaker labor market data typically provides a rationale for the Fed to consider interest rate cuts. However, if inflation remains elevated, this combination could lead to "stagflation"—a challenging scenario for investors characterized by economic stagnation coupled with inflation.
In-Depth AI Insights
Is AI's role in the job market being underestimated, and what does this imply for labor market structure? - The article cites economists suggesting AI is "automating away tech jobs," a stark contrast to previous optimistic narratives about AI creating new roles. - This may signal a faster and broader impact of AI on white-collar and knowledge-intensive jobs than anticipated, particularly in technology and professional services—sectors once considered bastions of high growth and high pay. - Long-term, this accelerates structural transformation in the labor market, potentially leading to widespread skill obsolescence and posing new demands on vocational training, education systems, and social safety nets. What is the true extent of U.S. labor market weakness, and how does it impact the Federal Reserve's policy independence? - This historic downward revision of job data reveals that the economy entered 2025 with significantly less momentum than previously understood by both the market and the Federal Reserve. - Such deep-seated weakness will substantially increase pressure on the Fed to cut rates to prevent a hard landing. However, if inflation remains elevated, the Fed faces the dilemma of "stagflation." - President Trump's public criticism of the Fed adds to the politicization of monetary policy. Amid a weakening labor market, such political interference could further erode the Fed's independence, subjecting it to greater external pressure when balancing inflation and growth targets, thereby influencing market expectations for future policy paths. Amid the dual pressures of stagflation risk and structural AI-driven unemployment, how should investors re-evaluate risk exposure and asset allocation? - Traditionally, stagflation environments favor gold, consumer staples, and companies with strong pricing power. Investors should re-examine their exposure to cyclical industries and high-growth tech stocks, which may face greater pressure during an economic slowdown. - Given AI's structural impact on employment, focusing on companies that effectively leverage AI to boost productivity rather than relying solely on labor growth, as well as those providing AI infrastructure or solutions, may offer greater resilience. - Furthermore, expectations for the Fed's policy path will be more complex; while rate cut expectations might be short-term positive for risk assets, if accompanied by persistent high inflation, investors should be wary of market correction risks and may need to adopt more defensive and diversified investment strategies.