Listen to the full episode, here.
Key Points
- The U.S. labor market was identified as the primary driver of the nation’s economy because the economy is nearly 70% driven by consumer consumption, which is fueled by paychecks.
- The recent cooling of the labor market was not seen as a sign of recession but rather a normalization after an unsustainable, post-COVID hiring boom fueled by government stimulus and pent-up demand.
- Companies that had over-hired, assuming perpetual high growth, were now hesitant to lay off employees, creating a “low hire, low fire” environment.
- The impact of AI on job losses was currently small, cited at around 7% in one report, and was viewed as a normal part of technological advancement.
- AI was expected to significantly boost the productivity of the existing workforce, which could lead to robust GDP growth even without the creation of new jobs.
- To remain valuable in an evolving job market, workers needed to understand their own “fungibility” and adapt to new technologies like AI to make themselves less replaceable.
John Norris (00:30):
Well, hello again, everybody. This is John Norris with Trading Perspectives. As always, we have our good friend, Sam Clement. Sam, say hello.
Sam Clement:
Hey John, how are you doing?
John Norris:
I’m doing fantastically. And guys, I’ve got to tell you, if you’ve been listening to Trading Perspectives over the years, you may have noticed that we haven’t been quite as regular as we have been in the past. There’s nothing secretive about that. We’ve just had some changes to our corporate structure and a little bit more compliance and regulation to deal with than previously. So we’ve been working through some growing pains — and that’s a good thing. Absolutely no arguments there.
So with that little caveat — or explanation — out of the way, Sam, we’ve got to talk a little bit about the labor markets. Everyone is anxious about the labor markets.
They certainly seem like they’re cooling down, particularly off the feverish pace we saw in 2021, 2022, and even going into 2023. But why is this so important? I mean, why are people who do what we do for a living hanging on every single piece of labor market data?
We’re overanalyzing the monthly ADP National Employment Report. Now ADP is even coming out with weekly data. The BLS, of course, releases the granddaddy of them all — the Employment Situation Report — normally the first Friday of every month. Then we also have weekly initial jobless claims from the BLS.
People are spending a lot more time pouring through this than they used to — and people used to spend a lot of time pouring over the data. So it’s a major topic of discussion within our industry. But why?
Sam Clement (02:01):
Well, the short answer is that it drives everything in our industry. We could do an entire podcast on how the labor market essentially drives everything.
That’s especially true for the U.S. economy, which is close to 70% driven by consumption. Most people don’t consume if they’re not making money — or making good money.
So it’s that second-order effect. Obviously, you want people employed. But employment leads to income, which leads to spending, which leads to economic growth. That’s the snowball effect — almost the chicken-and-the-egg dynamic — of what drives the U.S. economy.
You just can’t have economic growth without a strong labor market, especially in the U.S.
John Norris (02:53):
So basically what you’re saying is when we’re creating jobs, we’re creating paychecks — and when we’re creating paychecks, we’re creating consumers.
Sam Clement (03:00):
Exactly. And those consumers create other needs for jobs, which create more income, and it builds on itself. If you remove that, the whole cycle stops.
If we have jobs and go out to restaurants, grocery stores, and so forth, and then we lose our jobs, we stop spending. And then those people stop having jobs.
John Norris (03:26):
So what you’re saying is every consumer has a multiplier effect, even if they don’t understand it themselves.
Sam Clement:
Just the fact that you have to spend money leads to that.
John Norris:
You don’t technically have to spend it — but you’re not going to live very long if you don’t. And if you’re married, that person’s not going to be very happy with you either.
Sam Clement:
And that’s especially true for the U.S., given how large of a consumer economy we are. We spend more as a country than we “make” each year.
John Norris:
There’s no argument — we have a massive trade deficit.
Sam Clement:
Massive. The capital account and current account reflect that. So that’s why it’s so important. We’re uniquely positioned as strong consumers.
John Norris (04:07):
And for everyone out there saying, “The market’s been red hot — that’s what’s driving consumption,” I’d say yes and no — primarily no. Maybe 75% no, 25% yes.
The vast majority of Americans — maybe not those listening to economic podcasts — base their consumption on whether they’re bringing money in. And for most people, that’s their paycheck or entitlement check.
Most people don’t live off dividends, interest, or 401(k) balances. Market tailwinds may help the top quartile — maybe even the top 5–10%. And frankly, that group has been driving a lot of recent economic strength through bigger income and wealth gains.
Meanwhile, the bottom 50% — maybe even 75% — are struggling more. That’s why you have this bifurcated feeling about the economy. Some are doing very well. Others are barely getting ahead.
That’s why the job market is even more important than usual. We have to continue creating jobs to keep that bottom half supported by paychecks.
Sam Clement (05:41):
Completely agree. I’d add that what drives spending is both income and confidence that income will continue.
If you think you’re going to get fired, you’ll start saving money.
The bottom 50–70% has always been more income-sensitive, but the gap has become more extreme. That’s hard to argue with.
John Norris (06:22):
Exactly. And when you look at cooling labor market data — like the JOLTS report from the Bureau of Labor Statistics — job openings have fallen to around 7 to 7.4 million. Not long ago, they were over 10 million.
So fewer jobs are available.
But why has the labor market cooled even though the U.S. economy — according to the Bureau of Economic Analysis — is still growing around 2.5–2.6%? That’s not blazing hot, but it’s solid, especially compared to the rest of the developed world.
So why the cooling?
Sam Clement (07:41):
A lot goes back to COVID. It was a bit of a perfect storm.
We sent everyone home. Remote work expanded. Job mobility increased. Over-hiring happened during the post-COVID boom.
That hiring assumed growth would continue indefinitely. That makes sense if you believe growth will last forever.
But growth normalized. Add in some AI efficiencies, and suddenly companies think, “Let’s stretch out our hiring.”
John Norris (09:05):
I agree. Once the economy fully reopened — late 2020 into 2021 and 2022 — there was enormous pent-up demand and massive liquidity.
Businesses hired aggressively to keep up. Then growth normalized back to 2–2.5%. That’s not recessionary, but compared to 5–6%, it can feel like it.
Companies also hired to prevent competitors from hiring talent. It fed on itself.
Sam Clement:
We saw people hopping jobs and getting 20–25% raises repeatedly. Companies thought, “If we don’t hire them, someone else will.”
Now we’re on the other side of that.
Companies are hesitant to fire, but hiring has slowed. It’s become low hire, low fire.
Public companies also respond to stock prices. When stock prices fall 30–70%, suddenly cost-cutting accelerates.
Sam Clement:
The Challenger data showed about 7% of recent job cuts were attributed to AI.
John Norris:
Seven percent sounds shocking if you’re worried about AI. But that means seven out of 100 job cuts. That’s not enormous.
Technological change has always displaced jobs. When everyone learned to type, typists lost jobs. That wasn’t AI — it was progress.
Seven percent isn’t unprecedented in historical context.
Sam Clement:
Exactly. And we’re still early in AI-driven productivity.
Most people still use AI as a Google replacement. But its efficiency potential is much greater.
If 7% is happening this early, that suggests more productivity gains ahead.
GDP & Productivity Clarification
John Norris:
Even if AI reduces job growth, that doesn’t mean GDP collapses.
GDP equals C + I + G + (X – M). But it’s also labor growth plus productivity.
If workers become 5–10% more productive, GDP can grow even without strong job growth.
Sam Clement:
The key is understanding your value-add. If your job is easily automated, that’s concerning. If AI removes tasks but not your core function, that’s different.
John Norris:
Early in my career, we had typists. I had to handwrite memos, put them in red folders, and wait a full day to get them typed. If edits were needed, it took another day.
So I started typing my own documents using WordPerfect. Suddenly, I was far more productive.
Eventually, everyone followed. We didn’t need a typing pool anymore.
The lesson: those who adapt to technology advance. Those who define themselves strictly by job responsibilities risk stagnation.
You are fungible. Once you accept that, you start making yourself less so.
Closing
Well, guys, thank you all so much for listening. We always love to hear from you.
If you have any comments or questions, please drop us a line at , or leave us a review on your podcast platform of choice.
If you’re interested in reading or hearing more of what we have to say, go to oakworth.com — O-A-K-W-O-R-T-H.com — and look under the Thought Leadership tab for previous podcasts, our newsletter/blog Common Cents, quarterly analysis, and other content from our investment committee and advisory services group under Mac Frazier.
All right, Sam — enough of the commercial.
Sam Clement:
That’s all I’ve got.
John Norris:
That’s all I’ve got too. Y’all take care.
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