There are three reasons why job growth is slow: 1) Lower immigration, 2) AI implementation and 3) fewer government jobs.
Specifically:
The first chart below shows that at the current level of GDP growth, nonfarm payrolls should be 263k every month.
The second chart indicates that a key reason for the slow job growth is that the growth rate in the foreign-born labor force has been significantly weaker than normal. Fewer people looking for jobs means fewer people get hired.
The third chart indicates that AI implementation is likely improving productivity.
The fourth chart shows that government job growth was artificially high in 2022, 2023 and 2024. Combined with DOGE, government job growth is now returning to more normal levels.
The bottom line is that the weak labor market is not due to weaker labor demand, but rather to weaker labor supply because of immigration, AI implementation and a normalization of job growth in the public sector.
In short, slow job growth is not the result of a slowing economy. Because if it were, then GDP, consumer spending and capex spending would also be slowing.
The conclusion is that the Fed should focus less on the slowdown in job growth and more on the ongoing uptrend in inflation, see the fifth and sixth charts.
Sources: BEA, BLS, Haver Analytics, Apollo Chief EconomistSources: BEA, BLS, Haver Analytics, Apollo Chief EconomistNote: Survey from November 2024. Sources: The Impact of Generative AI on Work Productivity | St. Louis Fed, Apollo Chief EconomistSources: US Bureau of Labor Statistics (BLS), Macrobond, Apollo Chief Economist Sources: Institute for Supply Management (ISM), US Bureau of Labor Statistics (BLS), Macrobond, Apollo Chief EconomistSources: Federal Reserve Bank of Dallas, Federal Reserve Bank of Kansas City, Federal Reserve Bank of New York, Federal Reserve Bank of Philadelphia, US Bureau of Economic Analysis (BEA), Macrobond, Apollo Chief Economist
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