Despite numerous economic shocks, the US labour market has been remarkably durable. Employers are hiring at one of the quickest rates in the previous three years, according to Friday’s better-than-expected jobs data for October. The unemployment rate has remained at or below 4.5% for a record-breaking five years. However, the monthly snapshot also showed some concerning trends: workers’ earnings continue to lag behind inflation, the average length of time Americans are unemployed is the longest it has been in almost five years, and the majority of job growth are still concentrated in a small number of industries. Therefore, even if the labour market is stable, it hasn’t been operating at full capacity because its gears have been stuck for a long. The duration of the standstill and the potential causes of its breach have been questioned by economists. Now, the “blue tsunami” has joined the conversation. It’s still very early in the process, and there are many more significant elements at work, so it’s unclear what that means for the labour market’s trajectory. However, while the political scene is changing, economists are keeping a close eye on the following areas: First of all, policies have restrictions and change takes time. “Elections can shift the policy outlook, but they rarely change the labor market overnight,” said Cory Stahle. “The forces shaping hiring right now, from an aging workforce to AI adoption, were in place before the election and will still be there next year.”
There are certain structural changes taking place in the labour sector. Due to a decline in net immigration, an ageing population, and an increase in Baby Boomer retirements, the labour force is getting smaller. Jobs, industries, and the economy are changing as a result of technological advancements, most notably artificial intelligence. Policies to boost immigration or encourage more people to have children can be put in place to address the concerns of firms struggling with labour supply restrictions, but the results take time, he said. According to Tyler Schipper, if Americans want to see faster changes that affect their own economies, that is far more likely to happen at the state level than at the federal level. According to Schipper, President Donald Trump still has the veto authority, and Congress can only do so much on its own at the national level. He stated that there is more that can be done at the state level to address issues about affordability for the people and businesses that drive the economy. However, even those require time. “For instance, states can do a lot of work on transportation networks, and they can do a lot to make housing more affordable; but those are both investments that don’t see quick returns, even if they are investments that start right away in January,” he said.
There are some dangers associated with a split federal government. “What we might see at the national level is more gridlock and a lot of budget negotiations that have the potential to lead to government shutdowns,” Schipper said. “So, I am not entirely sure that people get the quick wins maybe they were hoping for at the national level.” Additionally, gridlock raises the possibility of few significant policy changes. And that would, in a sense, offer some much-needed assurance. “One of the drags on hiring has been uncertainty – uncertainty around tariffs, uncertainty around energy prices,” said Gus Faucher. “We might see lower levels of uncertainty, and overall, that’s good news for the labor market.” Trump’s defining economic strategy has been imposing broad import tariffs, as he has expressed a desire to support the country’s manufacturing sector and raise money for the government. After a period of job-shedding during the pandemic, including the loss of 113,000 jobs last year, manufacturing employment is beginning to rebound. Through October, the industry, which employs 12.7 million people, added 101,000 jobs and has experienced net growth for five consecutive months. But those increased import expenses were transferred to consumers and supply chains, pushing inflation higher last year. Early this year, as those impacts began to wane, the US and Israel’s assaults on Iran sparked a month-long conflict that resulted in an energy shock that raised petrol prices and inflation, exacerbating Americans’ long-standing concerns about affordability.
In a report earlier this week, Goldman Sachs economists stated that they anticipate Democrats will use budgetary deadlines to try to restrict the confrontation with Iran, remove some tariffs, and undo last year’s spending cuts. According to Schipper, there might be enough bipartisan support in Congress to persuade Trump to end a trade war with a specific nation, like Canada. A War Powers Resolution regarding the Iran issue may not be immune to vetoes. “Even if congressional pressure can help wrap up the war, a lot of the lingering effects that people are feeling, those don’t immediately go away,” he said. “The damage has been done, and that’s going to take quite a bit of time to resolve, even once the conflict has some kind of durable end.” The majority of employment growth in recent years have come from the healthcare and social assistance sectors, which have benefited from some of the demographic changes that are reducing the labour force. According to Diane Swonk, that industry faces serious risks as a result of massive Medicaid eligibility and budget changes that are scheduled to take effect on January 1, 2027. “We don’t know what’s going to happen if [Congress] gets a reconciliation package in the lame duck session or not,” Swonk said. “If they don’t, this is something that Democrats are going to want to try to get through themselves.”
According to her, the state and local governments that oversee the programs would have a significant gap to fill as a result of the reduction. According to her, it might lead to further consolidation and fewer programs and clinics, which would have a detrimental effect on jobs and services. “It’s really hard on rural areas but also in lower-income areas as well,” she said. AI has the ability to change the economy and provide millions of employment, but it has also caused a lot of worry and anxiety among Americans, particularly when it comes to their work and household finances. According to Challenger, Grey & Christmas data, employers have been citing AI adoption as a reason for layoffs in recent months. However, Faucher of PNC noted that these claims tend to exaggerate the real status of the labour market. “AI, at least as of yet, has not been transformative for the labor market,” he said. According to Goldman Sachs’ forecasts, stricter federal laws pertaining to AI and data centers are unlikely to happen right away. Their economists pointed out that this is not true at the state level. “The states where Democrats are likely to further restrict data centers account for roughly 45% of planned US data center capacity, with Texas alone accounting for roughly 25%,” they wrote. “However, since data centers are low on the list of priorities for voters this election, we expect that the issue will fade somewhat in importance in the ensuing months and that these moratoria will not be long-lived if they are enacted.”
According to Schipper, Tuesday’s election results give communities more control over who wants and doesn’t want AI companies. “It means that communities that might be more economically distressed have a better chance of winning some of those data AI center contracts, where it could actually have meaningful impacts in those communities,” he said. According to Joe Brusuelas, a slowdown in AI-related advancements would allay worries that the sharp increase in investment will be followed by a bust. According to him, the slowdown in AI-related spending may also lead to an increase in non-tech investment. “The boom in AI was crowding out both public and private-sector investment,” Brusuelas added. “The idea there’s going to be a slowing means there will be a redirection of capital into the real economy to meet legitimate needs of non-tech areas.” However, given the volatility of the markets on Thursday, there is still a chance that a protracted decline in AI stocks might have significant detrimental consequences on wealth that would affect the entire economy. Because of the wealth impacts brought about by the booming stock market, US consumer spending has been strong.
A slowdown in AI investment also could “dull a major source of US economic growth into 2027,” Robert Kavcic wrote in a note Friday. According to Schipper, the midterm results have understated anticipation impacts. He continued, “If people can appropriately set their expectations about how much a Democratic Congress can accomplish on its own, those expectations could ultimately have an impact on the broader economy.” Due to worries about AI’s possible detrimental effects on the labour market and a war-related surge in petrol prices, consumer morale has been declining for the majority of this year. “One of the things that’s been holding the economy back, not sending into a recession, but maybe holding it back, has been that people are generally pessimistic about both their current circumstances and the future,” he said. “People might feel slightly more positive if they see more of their politicians working for them, even if it’s not necessarily getting results.”
