Francis Tan of Indosuez Wealth Management shares his view on the U.S jobs data revision in July, and the potential impact of artificial intelligence on the global labor market.

San Francisco

The release of Open AI's ChatGPT has accelerated the development of artificial intelligence and warnings about its impact on society.

Rise of AI

The US labor market is experiencing a notable slowdown, with recent payroll data showing weaker job growth outside of government, education, and healthcare sectors. Experts highlight that private sector job gains have dropped significantly compared to previous averages, and overall job creation has slowed since the pandemic recovery. 

Amid this backdrop, analysts are debating the role of artificial intelligence in the workforce. While AI has the potential to disrupt jobs, particularly in the services sector, its ultimate impact depends on whether it is used to augment or replace human labor. The discussion underscores the importance of upskilling and reskilling workers to ensure AI serves as a complement rather than a substitute for jobs.

Is AI a labor-augmenting or labor-replacing technology?

most important politically for any president is what happens with jobs, right? And, you know, we had that, the payrolls numbered out last Friday. A bit of a shocker, huge miss on the headline and the revisions, huge revisions in the prior two months. Trump says, look, the numbers were rigged. The head of the BLS gets sacked, gets fired, etc. And now we're trying to decide, look, you know, how real are these numbers? Can we trust them? So, Martin, let me tell you something that's even more shocker other than the downward revision in the numbers for the previous months. If you really look at the entire non-farm payrolls and you take away the governmental related jobs, the education related jobs and the healthcare related jobs, the rest, I would call it more private sector type of jobs that only grew 4,000 jobs in the latest month. And guess what? Since the start of 2023, the average for this grouping of industries was gaining around 44,000. So 4,000 jobs in the latest month versus 44,000 on average. At the end of the day, the entire US labor market is slowing down, that's for sure. And of course, now with immigration slowing down, I think it's going to impact the total non-farm payrolls a lot more. I mean, since COVID, during COVID in 2020, the Americans lost 20.5 million jobs. Then in the first year in 2021, it gained 7.2 million. Guess what? Last year, it was only a 2 million jobs gain. And we think that it's going to gain 1 million this year. So Francis, let's put it all together. It seems like you're suggesting that, yes, pretty much confirmed now the US job market is at stall speed, is stalling, right? We had services ISM out overnight as well, showing the services sector, three quarters of the US economy is also at stall speed. Would it be too much of a stretch to say that we're just on the abyss of a recession? Well, of course, the prediction to a recession always takes some time. It's really hard. But it's like burying a frog in the water. Is the frog going to die at 60 degrees Celsius or 70 degrees Celsius? It really depends. But right now, we are continuing to see that the temperature in the water is moving higher for sure. I mean, if you look at the job openings to the unemployed ratio, it's 1.06, and it came from a high as well. So there are lesser jobs available. The quit rates are going down as well, because Americans perhaps are more cautious about the future. They're hanging on to their jobs tightly right now. And the employers are also coming up with less job listings. I mean, if you go to Indeed.com, for instance, job postings are also on the way down. So all these are a good sense of the labor market. And I got to ask, I mean, job openings jolts, right? You have to wonder how accurate those numbers are as well, because we had Jeremy Siegel on from UPenn, from Wharton just yesterday, saying that, look, the response rate or the participation rate for the jolts numbers is only about 20%. Sherry? Yeah. So where do you lean on, Francis? It was going to be my question here. So macro environment, less reliable, perhaps you can count on AI to deliver? Well, certainly. I mean, if you look at how industries have evolved in over the past few decades, it was robotics, automation that changed the life of jobs in the manufacturing, in the goods-producing sector. Right now, AI is coming in a big way for the services-related sector. And as Martin just mentioned, the US is a big services economy. Back in Singapore, over here, we are a huge services economy, I think around 70% of our GDP. So AI will potentially be also the big disruptor for jobs, including my job, I believe, in the future. However, it really depends on whether AI is treated as a labour-augmenting technology or a labour-replacing technology. So at the end of the day, for workers or for the labour force, upskilling, reskilling is so important to ensure that this AI is only going to be labour-augmenting and not labour-replacing. Let's just make sure that AI doesn't take over our jobs, for sure. So getting to yet another point regarding your calls here, very interesting, because you're actually upgrading US equities now from underweight to neutral, and you're actually sort of standing by to go to overweight when it comes to US equities. So you like equities all around, and is that sort of versus your less favourable calls and views on bonds? Oh, yes. Well, certainly we have been quite cautious on US equities, especially after Liberation Day this year. However, after looking at the latest earnings numbers as well, we find that the overall economy is still pretty robust in a way. I mean, of course, Martin was talking about, oh, when's the recession timeline? But between now and the recession, we don't know the timeline. So it's important not to miss out in the market as well. So we are putting it to neutral right now. Doesn't mean high overweight, but neutral across all our risk profiles.

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Is AI a labor-augmenting or labor-replacing technology?

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Rise of AI