GM. This is Milk Road Macro, the newsletter that’s making more sense of the economy than your econ professor ever did.
Here’s what we got for you today:
- ✍️ Everything you need to know about US jobs data and AI
- 🎙️ The Milk Road Macro Show: Why This Could Be the Biggest Bull Run Since the 1950s w/ Mel Mattison
- 🍪 AMD CEO Lisa Su urged thinking bigger on AI
Prices as of 8:00 AM ET.
EVERYTHING YOU NEED TO KNOW ABOUT U.S. JOBS DATA AND AI
New US jobs data continues to look concerning.
Many people are pointing towards a growth slowdown, or even recession.
But is it actually that worrying?
Are there abnormal factors pushing down on new job growth?
I want to pick up on a recent newsletter I wrote, exploring how AI might be reshaping the US economy.
The big question is: why is overall GDP growth in the US remaining resilient despite a weakening jobs/employment picture?
There are a number of plausible answers to this question.
But a big one is: AI.
AI is now here and it’s making a big impact - whether you like it or not.
So, what’s going on?
What’s happening at large US companies?
And what does it all mean for asset markets?
Let’s take a look…
So what’s going on?
Job growth in the US has been weakening for some time.
BLS Non-farm Payroll data shows a big decline in job growth in recent months.
We’re not currently getting official US Government labor market data due to the ongoing Government shutdown - so we haven’t seen the BLS September numbers (they were due last Friday).
But we have had September’s ADP report (private estimate of job growth) - and it was the softest since March 2023, coming in at -32,000, far below expectations.
On the surface, this points to a labor market rolling over.
Another private labor market data point - the Challenger report - shows that “announced hiring plans” are continuing to fall - from 404,000 in September last year to 117,000 in September this year.
But despite this weakening jobs picture, the US economy is still expanding at a relatively strong pace.
Consumption is still intact, and corporate earnings remain stable.
Real-time estimates show Q3 GDP growth sitting at 3.8% annualized, well above expectations.
A big part of what’s changing might be the dynamics around labor demand.
Many companies (particularly large firms) don’t need to hire aggressively to sustain output.
Productivity gains, driven by automation and AI, are reducing the need for incremental labor.
What’s happening at large companies?
The changing labor market dynamics are showing up most prominently in large companies - because these firms are laser-focused on AI advancements.
Let’s take a look at Walmart, Amazon and Accenture.
These companies make up three of the top four employers in the US, with more than 4 million workers between them.
Walmart CEO Doug McMillon recently said he “can’t think of a single job that won’t be changed by AI”.
Walmart hiring has slowed dramatically, but the company is also not really firing workers on any great scale.
The firm is not projecting large-scale layoffs or hiring sprees - essentially a period of big transition.
Employee headcount will remain roughly the same - but the workforce composition will shift as AI transforms and automates significant portions of work, according to reports.
Walmart has confirmed it has already deployed AI agents.
Accenture has confirmed it is cutting staff “it can’t retrain in the age of AI”, but claims it will hire some new staff.
“Advanced AI is becoming a part of everything we do”, said Accenture CEO Julie Sweet.
Amazon CEO Andy Jassy recently said AI “will probably mean fewer jobs”.
These comments came after Amazon cut roughly 27,000 jobs in recent years.
Additionally, Google also recently slipped through job cuts in its cloud division.
While not yet officially confirmed, reports indicate that Google is shifting resources partly to prioritize AI development.
Google is cutting workers in its cloud division - but this part of the business remains its fastest growing revenue segment.
What does it all mean for asset markets?
Of course, it’s terrible when somebody loses their job.
But the purpose of this newsletter is to assess how macro developments affect financial markets - so for now, I want to focus on what this means for markets.
We’re currently in a situation where many large firms are cutting jobs/not hiring new workers - they are fixated on boosting productivity and pouring investment into AI.
And yet, overall revenues and profits are at worst remaining the same, and in most cases increasing.
This is largely unprecedented throughout human history.
You would typically expect there to be some kind of correlation between revenue/profits and workforces.
If we take the official BLS Nonfarm Payroll data - more than 60% of this survey is made up of “large firms”.
So, if large firms are not really hiring in any meaningful way - we may continue to see this official payroll number remaining low.
It’s very possible we can have an ongoing continuation of the current situation where:
- Overall GDP growth is resilient or even accelerating, fueled partly by productivity gains
- Overall labor market/job growth numbers are not that great, or even outright concerning
- But stock markets and other risk assets still generally move higher, because revenue and profit at large firms continues to increase
This persistently weak employment/labor market dynamic also likely ensures that the Federal Reserve remains engaged in “easing mode” and continues to cut interest rates, further bolstering the outlook for risk assets.
However, from an investing perspective, it’s important not to move too far in the direction of “job growth doesn't matter anymore”.
There’s a delicate balance here.
The employment/labor market situation could at some point tip into “concerning territory” in terms of a potential recession, which would then be bad news for risk assets.
But, at the moment, there’s not really any immediate signs of that.
We can see this through Initial Jobless Claims (the number of people claiming unemployment benefits for the first time).
This is hovering around multi-decade lows.
In the event of a “real recession” - this number would move much higher than where it is now.
Another important factor here is the recent collapse in US immigration levels since President Trump took office.
This means population growth is falling (and might actually be negative).
Less people means less jobs are needed to sustain a “healthy” economy.
Wrapping up
Yes - I know.
This AI job impact outlook seems quite dystopian and might further drive widening inequality as it continues.
But from a purely investment-based point-of-view, it’s an important ongoing factor to be aware of.
Overall output appears to be decoupling from headcount, for now at least.
The economy appears to be able to keep growing, and even accelerate, while producing much lower job growth.
This is a sharp contrast to recent history and breaks many historical economic models.
In the current environment, low job growth is not necessarily a sign of a weakening economy.
Sometimes all you need to do is look at markets for confirmation.
And right now: job numbers = down, stock market = up.
That’s it for this edition - catch you in the next one.
IS THIS A 1950s-STYLE BOOM? 💥
In today’s episode, we sat down with Mel Mattison to talk about why this might be the biggest bull run since the 1950s.
Take a look at what surprised us:
- Why this market echoes the 1920s, 1950s, and 1990s… all at once
- How the “debasement trade” went from fringe to mainstream
- Mel’s bold prediction: a $20T Fed balance sheet without hyperinflation
- The case for Bitcoin, gold, and emerging markets as the next big plays
Tune in and see for yourself 👇
YouTube | Spotify | Apple Podcasts
BITE-SIZED COOKIES FOR THE ROAD 🍪
In a widely unexpected election result in Japan, Sanae Takaichi was all but confirmed as the country’s next leader. Takaichi is expected to unleash fiscal stimulus and pressure the central bank to ease - with Japanese stocks flying higher in anticipation of big spending and loose monetary policy.
The US Government shutdown continues as lawmakers argue over a new spending bill. President Trump has opened the door to Democrats, saying he would negotiate over health care subsidies.
Advanced Micro Devices (AMD) CEO Lisa Su said it's time for the tech world to think bigger about artificial intelligence. The comments came after AMD announced a new multi-billion dollar partnership with OpenAI.
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